Odds Of ‘No Deal’ Brexit Plunge As Boris Johnson Signals He Won’t Walk Away From Talks With EU

With one day left until the beginning of a pan-European summit marketed as the final chance for EU leaders to sign off on a UK-EU trade agreement, UK Prime Minister Boris Johnson has signaled on Wednesday morning that his government will not walk away from the table, as it had threatened to do, prompting analysts to dramatically lower their odds for ‘no deal’.

BoJo had previously set Oct. 15, the beginning of a critical EU summit, as a soft deadline for talks.

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No trade deal “is still possible, but probably would come more as an ‘accident’ at this stage than by intent,” says strategist Ned Rumpeltin. Odds down from around 40% before. “Sterling should naturally benefit as the final uncertainties are lifted,” he told Bloomberg.

The pound will remain vulnerable to trade negotiations, but the odds of a no deal have fallen to around 20%-25% and the currency should finish the year at $1.35, according to Toronto-Dominion Bank.

As is often the case in currency markets, if anxieties about ‘no deal’ continue to ease, traders may simply turn their attention to another even more troublesome issue: The second wave of COVID-19 cases that is battering Europe – with the UK again emerging as one of the worst-hit countries – which forced BoJo to concede on Wednesday that a “circuit breaker” two-week lockdown might be inevitable if the latest social distancing restrictions enacted by the British government fail to arrest the virus.

Roughly an hour after the first headlines about Johnson’s latest change of heart hit, Reuters reported that EU leaders meeting in Brussels on Thursday and Friday to discuss Brexit believe that progress in talks with Britain is “still not sufficient” to seal a new trade deal. The heads of the 27 EU members are also expected to agree to ramp up contingency planning, while also authorizing lead Brexit negotiator Michel Barnier to intensify talks to try and get a deal by Dec. 31, when the transition period expires.

“It is in the interests of both sides to have an agreement in place before the end of the transition period,” EU summit chairman Charles Michel said in a invitation letter to leaders. “This cannot, however, happen at any price. The coming days are decisive. Key issues include, in particular, the level playing field, fisheries and governance,” he said.

The deal sticking points remain largely unchanged: fair competition, fishing rights and dispute settlement procedures. And there’s still the issue of BoJo’s ‘Intermarket Bill’.