On Wednesday evening, EU sources said EU member states have begun preparing for the provisional application process for a new U.K. trade deal to begin on Jan. 1. The European Commission informed EU member states that if a deal is reached today, a meeting will be held on Thursday morning. The UK Sun then reported that a Brexit deal was close at hand and the pound stood at 1.35 against the dollar, up 1.11% intraday.
At 23:04, according to Sky News, a British government source said the Brexit deal was done, but a source soon clarified that the deal was not done. GBPUSD jumped 50 pips higher before giving back gains.
Senior EU diplomats also said late in the evening that the Brexit deal could be announced today. While the BBC political editor said it looked like a deal could be reached tonight after news of a completed agreement came out on Sky News, it has not been officially finalized.
Adam Button, an analyst at financial website Forexlive, said some parts of the market were still focused on differences over fisheries, but it was inconceivable that a trade deal between the world’s two largest economies would break down over a $40 million fisheries-related agreement. But at the last crucial moment, in addition to fisheries, the two sides actually had a spat over another minor issue. According to The Sun, Britain and Europe are at odds over the use of batteries in electric cars.
A British source said “we’re not far from an agreement,” but in the fine print of the deal, the U.K. wants to allow domestic manufacturers to use batteries imported from China in electric cars shipped to the continent, and to include this in the terms.
However, the EU says this is unacceptable, as they plan to ban the use of all foreign electrical equipment from 2027.
With the UK leading the way in green cars and hoping to preserve thousands of high-tech jobs at home, the UK’s electric car production has become a major demand in the negotiations. In response to the EU’s opposition, a British representative responded.
“I don’t think it’s a big deal, our automotive industry can remain flexible.”
Another British trade expert stated.
“The EU’s heavy-handed approach could undermine the UK’s claim to be a world leader in climate change and green technology.”
As for the fisheries issue, on which there has previously been a continuing standoff, the U.K. and Europe are close to reaching an agreement. European Commission President De Laing has been communicating back and forth with British Prime Minister Johnson and EU member states. Irish Prime Minister Micheal Martin told Irish television that if an agreement is reached today or tomorrow, officials will start drafting the text on Christmas Day and we are all on standby.
The Sun reports that, overall, given the progress that has been made, there should be a deal and the absence of one would be a terrible shock to the economic system.
Also ahead of the UK is the deadly threat posed by the new strain of the New Coronavirus, with health Secretary Hancock saying tonight that Level 3 restrictions are not enough to contain the new strain, so areas in East and South East England will move to Level 4 restrictions, also taking action against parts of the South West of England. Sussex, Oxfordshire and Essex will enter Level 4 restrictions in the early hours of December 26, and other areas will enter Level 4 controls on Boxing Day (28th).
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