Pound up in value as hopes rise of a Brexit trade deal

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Some of last week’s losses reversed after EU’s Michel Barnier says deal is possible

The EU’s chief negotiator, Michel Barnier.
The EU’s chief negotiator, Michel Barnier, says negotiations with the UK have come down to finding settlements on fair-competition rules and fishing rights. Photograph: François Walschaerts/Reuters
The EU’s chief negotiator, Michel Barnier, says negotiations with the UK have come down to finding settlements on fair-competition rules and fishing rights. Photograph: François Walschaerts/Reuters

First published on Mon 14 Dec 2020 09.36 EST

The pound edged higher in value against the dollar and the euro on Monday as investors digested claims that a deal in the UK’s trade negotiations with the EU had taken a step closer.

The EU’s chief negotiator, Michel Barnier, said on Monday he believed a Brexit trade agreement was possible now the remaining disputes had been whittled down to only two.

The pound jumped more than one cent, or 1.4%, against a weakening dollar in morning trading to hit $1.34, before settling later at $1.33, reversing some of the losses of last week when investors feared Brexit talks would break down and the UK was on course for leaving the EU without a deal.

Sterling, which was worth almost €1.40 five years ago, gained 0.5% to just below €1.10.

“The pound is obviously relieved that the trade talks will continue between the EU and the UK,” said Jane Foley, the head of FX strategy at Rabobank.

“However, no tangible process has been confirmed over the weekend and the market is therefore likely to remain on tenterhooks in the week ahead. Without confirmation that progress has been made, the pound’s gains are likely to be capped.”

Britain’s FTSE 100, which initially edged 0.2% higher to 6,557, later reversed as investors sold AstraZeneca stock after poor reviews for its planned $39bn takeover of the US biotech firm Alexion. It closed down 15 points at 6,531.

US markets made modest gains in early trading, with the Dow Jones Industrial Average up 0.2% at 30,051.

Analysts said investors are treading water as Congress considers giving the green light to a second large stimulus package to protect households and businesses from the ravages of the pandemic in the winter months.

Wall Street is also waiting for a special election in Georgia in early January, which could potentially switch the balance of power in the US Senate.

Markets made gains while investors also remained wary of further lockdowns in some of Europe’s largest economies, particularly Germany, Italy and France, limiting business activity.

Deutsche Bank analyst Jim Reid said the euphoria surrounding the positive impact of a vaccine was tempered by the impact of the virus’s second wave.

“In the short-term [the lockdown] will be a blow to activity and confidence even if the damage will be limited by knowledge of the imminent vaccine rollout,” he said.

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Barnier said negotiations with the UK had come down to finding settlements on fair-competition rules and fishing rights, and appeared to contradict Boris Johnson, who said a gulf remained between the sides when talks were adjourned on Sunday night.

The EU’s chief negotiator said Johnson’s acceptance of the need for “a mechanism of unilateral measures” should regulatory standards diverge over time had unlocked the talks despite difficult issues remaining.

Both sides are teetering on the brink of a no-deal Brexit departure. They have committed to a final push in talks in the run-up to 31 December, when a transitional period following the UK’s departure from the bloc is to end.

Marking a turnaround in sentiment from the fears of a no-deal Brexit that characterised last week’s news agenda, Brent crude, the international oil barometer, picked up 63 cents to $50.60 per barrel.