The Financial Times has released an article that will likely make sterling investors nervous as Brussels has been urged to prepare a contingency plan for the UK trade war. The ”EU countries want European Commission to be ready if Britain suspends key part of Brexit deal,” the Financial Times explained.
”Leading EU member states are pressing Brussels to draw up tough retaliatory measures should the UK carry out its threat to suspend trading arrangements for Northern Ireland enshrined in the Brexit deal.
Representatives of five member states on Monday met European Commission vice-president Maros Sefcovic, the EU Brexit negotiator, to demand he come up with contingency plans for a possible trade war, diplomats have told the Financial Times.”
As bilateral discussions start again in earnest over the Northern Ireland Protocol, there’s definite potential for things to get a lot messier which is going to be a headwind for the pound.
UK Brexit Minister Lord Frost’s demand to rewrite the Protocol to at least dilute the role of the European Court of Justice (ECJ) in overseeing the rules. If Lord Frost does not back down on this, an EU official said it will be “a very big gap between the ideas we are putting on the table today and what the UK Government is asking for.”
GBP/USD weekly chart
From a weekly perspective, considering the price dropped below all of the support structures which it is now testing again as resistance, the bias remains bearish. A correction to the trendline resistance and a 61.8% Fibonacci is underway, but bears are likely lurking at these levels.