Pound hits two-year high as hopes of Brexit trade deal rise
The pound hit its highest level in two years after market optimism rose that the UK and EU would strike a post-Brexit trade agreement.
Sterling climbed 0.5 per cent to $1.352 having earlier touched $1.355, its highest level since the spring of 2018. The pound was up 0.3 per cent against the euro at €1.109.
The rise in the currency came as reports suggested that the two sides were giving ground, raising the chances of an agreement.
Britain has dropped a push for the renationalisting fishing vessels, according to EU sources who spoke to The Guardian. It had previously wanted boats operating under the UK flag to be majority British-owned.
Excitement for a deal also rose as it became clear that leader of the House of Commons Jacob Rees-Mogg had not moved a “recess motion”. This suggested the Commons could be made to sit over the Christmas recess to ratify an agreement.
Connor Campbell, market analyst at trading platform Spreadex, said: “The market perception of the Brexit negotiations is that no news is good news, and that the relative lack of updates on the progress of the latest round of talks suggests both sides are serious about pursing an agreement.
“This chimes with reports that the UK has dropped another one of its sea-obsessed demands, abandoning its intention of renationalising fishing vessels.”
Pound ‘could rise to $1.40’ with Brexit deal
A no-deal Brexit would mean the UK leaves the EU single market and goes on to World Trade Organization terms. This would increase tariffs in key areas such as farming and cars.
Consultancy Capital Economics said a no-deal Brexit could make the pound drop initially to $1.15, before recovering somewhat. However, it also said that a deal could help sterling rise to $1.40 in 2021.
The Brexit-driven rise in the pound failed to dampen the FTSE 100, which was last up 0.9 per cent at 6,571 points. Traditionally, a higher pound weighs on the index by dragging on constituents’ overseas earnings.
Capital Economics said a Brexit deal and a relatively rapid economic recovery thanks to vaccines could push the FTSE up to 7,500 points next year, along with the pound.