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Markets

Sterling shines as no-deal Brexit averted after tumultuous 2020

  • FTSE 100 index slid 1.0 percent in holiday-shortened late morning deals as the strong pound weighed on multinationals earning in dollars.
31 Dec 2020

LONDON: The British pound surged Thursday to a 2.5-year dollar peak before Britain's long-awaited exit from the European single market, with a trade deal in the bag on the final trading day of a coronavirus-ravaged 2020.

In morning deals, sterling jumped to $1.3686 to attain the highest level since April 2018, boosted also after Britain became the first nation to approve AstraZeneca's cheap Covid-19 vaccine.

Britain's departure from the European Union takes full effect at 11:00 pm (2300 GMT), just hours after much of the country was moved into the top tier-four coronavirus restrictions.

The nation left the bloc on January 31 but has been in a standstill transition while it sought a free-trade agreement -- which was finally clinched on Christmas Eve and approved by lawmakers on Wednesday.

That dispelled long-running fears of a chaotic no-deal departure that could have sparked a double-dip downturn, after Britain tanked into a recession earlier this year on the fallout from the coronavirus pandemic.

"A Brexit deal may have come extremely late in the day but there will be a massive sense of relief that the UK won't be battling no-deal on top of everything else in the coming months -- and that relief can be seen in the pound," OANDA analyst Craig Erlam told AFP.

"It's ending the year on a high... It's all about the recovery now for the UK as it faces another devastating (virus) surge and most of the country moves into tier four.

"The UK has suffered more than most this year and the next couple of months is unlikely to be any better. It's a long road to recovery and the Brexit deal will certainly help."

Investors were also embracing this week's positive news on vaccines, which stoked hopes of a return to normality.

"Investors are continuing to ignore short term risks and are looking ahead to more normal times ahead with vaccines," said ThinkMarkets analyst Fawad Razaqzada.

London's benchmark FTSE 100 index slid 1.0 percent in holiday-shortened late morning deals as the strong pound weighed on multinationals earning in dollars.

In the eurozone meanwhile, the Paris CAC 40 stocks index fell 0.2 percent.

Frankfurt's DAX 30 shut for the year on Wednesday with a daily drop of 0.3 percent.

Bitcoin stood within sight of $30,000 after hit another record high overnight on wave of enthusiasm for the world's most popular cyber currency.

Brexit and coronavirus have nevertheless cast a long dark shadow over global economies and stock markets this year, particularly in London which is set for an annual loss of 14 percent.

Paris faces a drop of about 6.8 percent but Frankfurt gained 3.6 percent in volatile record-breaking deals over the course of 2020.

"A turbulent and strange stock market year has come to an end," said Comdirect analyst Andreas Lipkow.

Equities were slammed in the spring during the first wave of the pandemic.

They have since rebounded somewhat, especially after the European Central Bank committed to an emergency pandemic asset-purchase programme, increased to 1.85 trillion euros ($2.3 trillion) in December amid unprecedented global stimulus.

The pandemic is not the only thing that has tested investors in 2020 -- plummeting oil prices and the collapse of German payment provider Wirecard also hit the headlines.

Asian markets were mixed as a painful year drew to a close.

While the world economy has been devastated by the coronavirus and lockdowns it has caused, markets were broadly boosted by governments and central banks stumping up mind-boggling amounts of money to prevent a depression.

The election of Joe Biden as US president in November -- lifting hopes for a more calm leadership -- also bolstered sentiment.

Key figures around 1130 GMT -

Pound/dollar: UP at $1.3655 from $1.3625 at 2200 GMT

Euro/pound: DOWN at 89.95 pence from 90.26 pence

London - FTSE 100: DOWN 1.0 percent at 6,488.29 points

Paris - CAC 40: DOWN 0.2 percent at 5,588.14

EURO STOXX 50: DOWN 0.4 percent at 3,568.58

Frankfurt - DAX 30: DOWN 0.3 percent at 13,718.78 (close)

Hong Kong - Hang Seng: UP 0.3 percent at 27,231.13 (close)

Shanghai - Composite: UP 1.7 percent at 3,473.07 (close)

Tokyo - Nikkei 225: Closed for a holiday

New York - Dow: UP 0.2 percent at 30,409.56 (close Wednesday)

Euro/dollar: DOWN at $1.2282 from $1.2298

Dollar/yen: DOWN at 103.07 yen from 103.19 yen

West Texas Intermediate: DOWN 0.3 percent at $48.24 per barrel

Brent North Sea crude: UP 0.1 percent at $51.28