GBP/USD tumbles as UK and EU heads on a collision path

The GBP/USD pair declined sharply as the eighth round of Brexit negotiations ended without a deal. The pair is trading at 1.28200, which is a few pips above the yesterday’s low of 1.2776. Similarly, the British pound index has fallen by more than 1.50% in the past 24 hours.

Brexit talks hit deadlock

In a statement yesterday, David Frost, the chief UK negotiator, said that the two sides had failed to make progress on key issues. He issued the statement after the two sides concluded the eighth round of talks that were held in London. He said:

“We have engaged in discussions in all areas.  We have consistently made proposals which provide for open and fair competition, on the basis of high standards, in a way which is appropriate to a modern free trade agreement between sovereign and autonomous equals.”

In his part, Michel Barnier, the chief EU negotiator, blamed the UK side of not being flexible to accommodate demands by the European Union. Particularly, he reiterated that the bloc had made serious concessions on the European Court of Justice.

He also noted other key issues hindering a deal including trade regulations and non-regression from social, environmental, and labour issues. He said:

“The UK is refusing to include indispensable guarantees of fair competition in our future agreement, while requesting free access to our market.”

EU-UK relations challenges

This round of talks came at a difficult time for the EU-UK relations. That is after the UK passed an internal market bill that goes against what Boris Johnson signed in the withdrawal agreement in October. The bill will intentionally break the law on Northern Ireland backstop.

In a statement yesterday, the European Union asked the UK to swiftly withdraw the bill to prevent a lawsuit. Boris Johnson swiftly rejected the ultimatum, meaning that the two sides could face-off in court.

The United States has also weighed in on the matter. In a statement, Nancy Pelosi said that the UK must withdraw the bill if the country wants a free trade deal with the United States. This was an important thing considering that the UK is banking on a deal with the US after it leaves the EU.

Separately, the GBP/USD will react mildly to the final reading of UK GDP data that will come out at 07:00 GMT. Analysts expect the data will show that the country’s economy contracted by 21.7% in the second quarter. The Office of National Statistics (ONS) will also release the industrial and manufacturing production data.

GBP/USD technical analysis

The four-hour chart shows that the GBP/USD has been in a steep downward trend since the month started. The price is trading at 1.2820, which is slightly below the 50% Fibonacci retracement level. It is also below the 25-day and 50-day exponential moving averages while the Relative Strength Index (RSI) has moved below the oversold level. Therefore, the pair is likely to continue falling as bears attempt to move below 1.2800.