Pound buoyant as Brexit talks extended

* Pound keeps overnight gains against dollar, euro

* Brexit talks set to continue

* Deal remains base case for investors

LONDON, Dec 14 (Reuters) – Sterling kept overnight gains against the dollar and the euro on Monday, as talks for a post-Brexit trade deal between Britain and the European Union were set to continue after the two sides decided to extend discussions beyond the previous day’s deadline.

British Prime Minister Boris Johnson and the president of the EU’s executive Commission, Ursula von der Leyen, had given negotiators a Sunday deadline to find a way to resolve an impasse on arrangements that would guarantee Britain zero-tariff and zero-quota access to the EU’s single market. On Sunday, they mandated negotiators to continue talks.

Business Secretary Alok Sharma told Sky News on Monday that while Britain and the EU are still apart in the talks, Johnson does not want to walk away yet.

In early deals in London, the pound traded 1% higher to the dollar at $1.3359, having hit a high of $1.3384 in Asian trading hours.

Against the euro, it was 0.8% higher at 90.89 pence per euro.

“It comes as no surprise that the EU and the UK have allowed another self-imposed deadline to pass. Although there is little sign at this stage that the main sticking points are any closer to being resolved, we expect progress to be made as the only real deadline, 31 December, approaches,” said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management, in a note to clients.

“In our view, a deal is still more likely than not, but with each day that passes, the risk of a no-deal outcome grows.”

UBS added that the announcement of an agreement could push sterling to $1.35, while increasing uncertainty about a no-deal outcome could lead it to revisit September lows of around $1.28.

CFTC positioning data showed that speculators flipped to a net long position on the pound in the week up to last Tuesday.

The odds of Britain agreeing a trade deal with the European Union before the end of a transition period have risen to 57% on Monday, up from 40% last week, according to punters betting on the Smarkets exchange.

Chances of a “no deal” had risen to as much as 61% on Friday from 19% in late November after leaders failed to break an impasse in talks, according to the betting exchange.

“With less than three weeks to go until the end of the Brexit transition phase, significant sticking points remain in the EU-UK negotiations,” Goldman Sachs said in a research note.

“Our base case remains that a ‘thin’ free trade agreement (FTA) will be reached before the end of the year, which would ensure continued free trade in goods but entail barriers for trade in services.”

Source: Read Full Article