Brexit talks drag on, UK services PMI revised higher

Sterling has found gains against the broadly weaker US dollar harder to come by so far this week, owing largely to ongoing market jitters surrounding Brexit.

Top officials from both sides of the negotiations remain locked in talks, with three key issues said to be holding up the agreement – fisheries, state aid for companies and rules to resolve disputes. France appears unwilling to budge on the fisheries issue, but just how far apart the two parties remain is unclear, so investors have no real timeframe on when a deal could be announced. What we do know is that the UK will leave talks without a deal in place on 1st January should an agreement not be ironed out in the next few weeks. The deeper into the month we go without news of a deal, the greater pressure sterling will inevitably come under.

Meanwhile, this morning’s UK services PMI provided reason for optimism. The index for November was revised up to 47.6 from the initial 45.8 reading. While this remains in contractionary territory, it suggests that the downturn in activity in Q4 may not be as bad as first feared. This, combined with the highly encouraging vaccine news, provide a backdrop for more gains in the pound, provided we get news shortly of a Brexit deal.