Sterling drops – Brexit tensions threaten trade deal

Sterling has weakened against the U.S. dollar on Monday morning as escalating tensions between the U.K. and the EU are threatening any chances of a post-Brexit trade deal in the coming months. Sterling dropped about 0.5% against the USD in early European trading hours ahead of another round of trade talks between the U.K. and EU Monday and increasingly acrimonious relations. There are two main issues threatening to derail the entire process: differences over state aid and fisheries. The prospects for a deal were dealt another blow overnight after news that the U.K. government is preparing to override previous agreements with the EU.

The U.K. stopped being a full member of the European Union in January, after voting in 2016 to leave the political bloc and after about three years of intense negotiations over the departure. Back then, the U.K. and the EU agreed to give themselves some more time to develop new trade arrangements and avoid a sudden shock at their borders. The deadline to do that ends in December. The EU had previously said that October was the key moment to achieve new trade arrangements, so there would be time for the necessary legislative processes before implementation on January 1, 2021. However, over the last months, U.K. and European negotiators have complained about the lack of progress in their negotiations.

In addition to the lack of progress in trade talks, the U.K. government is reportedly preparing new laws that will change previous agreements with the EU. A government bill, due to be published Wednesday, is expected to override a previous deal that aimed to prevent a hard border between Northern Ireland and the Republic of Ireland, the Financial Times reported Sunday. The EU’s chief negotiator, Michel Barnier, has often said that the implementation of this border agreement is crucial to ensure a successful trade deal.

Sterling drops as escalating Brexit tensions threaten possible trade deal, CNBC, Sep 7