- Currency traders gave thumbs-up to May-Juncker deal and bought sterling
- Pound surged to €1.151 from a low yesterday of €1.131, but later fell back to €1.141
- Business groups react with relief to the Brussels pact
Currency traders bought sterling, sending it to €1.151, after the European Commission’s announcement that ‘sufficient progress’ had been made in the first phase of Brexit talks lifted some of the economic uncertainty that had been weighing on the UK currency.
That was a gain of 1.5 per cent from yesterday’s low of €1.131, and the highest level for sterling against the single currency since June. But the pound later dropped back to €1.1355 as traders absorbed some weak UK construction data. It closed at €1.1391.
Relief rally: The Brexit deal has sent the pound to six-month highs against the euro.
The pound had made gains overnight against the dollar to trade above $1.35. But the implications of the May-Juncker deal for the UK economy were outweighed by strong US jobs figures this afternoon that strengthened the dollar and saw the pound fall back to $1.339.
Craig Erlam, senior market analyst at OANDA, said: ‘The response in the pound to the announcement may come as a surprise given just how significant today’s agreement is, but it’s worth noting that this has been in the making over the last couple of weeks and it was in both sides’ interest to get this done today.
The pound gained 1.5 per cent from yesterday’s low of €1.131 to the highest level for sterling against the single currency since June.
As traders tried to digest the implications of the May-Juncker deal for the UK economy, sterling fell back to $1.345 and then recovered to trade above $1.35 once more.
‘Had the two sides failed to come to an agreement then the downside in the pound may well have been far greater.
‘We’ve seen a rally in the pound over the last couple of weeks on the expectation of a deal being agreed so what we may be seeing is simply a case of buying the rumour and selling the fact.’
Connor Campbell, a financial analyst at SpreadEx, said market excitement will probably be short-lived.
‘Though inarguably pretty damn healthy, this early growth does suggest a level of reticence from investors, who appear to be taking on board Donald Tusk’s warning that the real hard part – ie the forging of a new relationship between the UK and EU – is still to come,’ he said.
Prime Minister Theresa May and Brexit Secretary David Davis had made an early-hours journey to Brussels to meet European Commission president Jean-Claude Juncker and the European Union’s chief Brexit negotiator, Michel Barnier.
That’s a deal: PM Theresa May and European Commission president Jean-Claude Juncker shake on the early-hours agreement.
Business groups reacted with relief to the news.
Stephen Martin, director-general of the Institute of Directors, said: ‘It went right down to the wire, but businesses will be breathing a huge sigh of relief that the UK and European Commission have reached agreement on phase one issues, putting us in a good position going into the Council meeting next week.’
CBI deputy director-general Josh Hardie said that, ‘It’s now time to focus on the true prize of a new relationship and a deal that starts from 40 years of economic integration.’
He added that two things are now ‘top of the list’: ‘First is the final step for those EU citizens working here, and UK citizens abroad. It must be unequivocal that they are welcome, whatever the final deal. This cannot be their second Christmas where their rights are dependent on negotiations.
‘Next is transition. Concrete assurances will build confidence and help firms across the UK and Europe to pause their contingency planning.’
The national chairman of the Federation of Small Businesses, Mike Cherry, said the focus ‘must now shift to the UK’s future trading relationship with the EU’.
‘This should include, by early next year, a guarantee that there will be no cliff-edge moment on Brexit day, but instead an orderly, time-limited transition period so that small firms only have one set of rule changes,’ he added.
‘The final deal must have as few barriers to trade as possible.’
Attention will now turn to trade and Mrs May faces another race against the clock to secure a trade deal that delivers the ‘exact same benefits’ of the single market, which her Government has promised the British electorate.
Britain is due to exit the single market and customs union in 2019.
Courtesy: Daily Mail Online