Lutz Karpowitz, Analyst at Commerzbank, suggests that Brussels is increasingly talking about how the British side has lost its sense of reality and for now the FX market is not yet focussing on the summit next month.

Key Quotes

“But at some point it will. So what is happening with the Brits? Is London really living in a dream world? An explanation of that nature is a little too limited. Instead one should see the British position as a strategy. At the core of the strategy rests the assumption that in the end Brussels will cave in. First of all because one country on its own can remain firm much more easily than a whole group of countries; secondly as the economic difficulties will affect the Europeans as well as the UK.”

“In view of this strategy none of the threats from Brussels have an effect and as a result nothing is happening. London expects Brussels to compromise at the last minute rather than to capitulate right away. If the UK pursues this strategy in a consistent manner a further escalation is likely. The latter is virtually part of the British plan. The major disadvantage of such a strategy is that it is inflexible. It makes it impossible to react to signals sent out by the opposing party. In poker one would call that “all in”. But what if the Europeans ask the Brits to show their cards? Let us not think of the worst case scenario quite yet, but nonetheless one should consider carefully before entering GBP longs and wonder whether the situation is not getting a little hot as the summit in December approaches.”