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Markets

Sterling rises above $1.36 on renewed Brexit trade deal hopes

  • The pound is benefiting from an improvement in the narrative on the chances of a Brexit trade deal this week, almost a year after Britain formally left the European Union.
17 Dec, 2020

LONDON: Sterling rallied to above $1.36, holding up to a 2-1/2 year high against a broadly struggling dollar on Thursday as reports of progress in Brexit trade talks boosted appetite for the British currency.

With just two weeks left to the end of a Brexit transition period on Dec. 31, Britain and the European Union are in the final stretch of talks to keep about 1 trillion dollars of annual trade free of tariffs and quotas.

EU Brexit negotiator Michel Barnier said on Thursday that "good progress" was being made in talks with Britain.

UK senior minister Michael Gove said Britain is going the extra mile to get a Brexit trade deal.

The pound is benefiting from an improvement in the narrative on the chances of a Brexit trade deal this week, almost a year after Britain formally left the European Union.

"Sterling trading is likely to remain firm" as more Brexit headlines come in, said Neil Jones, head of FX sales at Mizuho Bank.

"The market is looking for a deal with compromise on fisheries," - one of the sticking points in the negotiations.

Earlier this week, Prime Minister Boris Johnson said he hoped the EU would "see sense" and agree a deal that respected Britain's sovereignty.

The pound jumped to its highest level since May 2018 after European Commission President Ursula von der Leyen said on Wednesday there was now a "very narrow" path to agreement though success was not guaranteed.

Sterling extended gains on Thursday to $1.3616, up 0.8pc against the dollar at 1120 GMT.

Against the euro, it gained 0.6pc and hit a one-week high of 89.83 pence.

Meantime, the Bank of England is expected to stand pat at a meeting later on Thursday as the bank is seen adopting a wait-and-see approach until it has more clarity whether a Brexit deal will be sealed.

"I am not expecting any moves from the BOE but if this transpires, sterling will be sold off hard today, but still remain in the overall uptrend," Jones added.

Geoff Yu, senior EMEA market strategist added that "negative rates appear to be off the table".

Analysts are also taking it as a positive sign for the pound that Britain's parliament will be on standby during its Christmas break, and could be recalled at short notice to pass required legislation if a trade deal is struck.

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