Investors have driven the pound up more than one per cent against the dollar and euro amid optimism about the extension of Brexit talks.
Yesterday, UK Prime Minister Boris Johnson and EU Commission president Ursula von der Leyen agreed to “go the extra mile” and extend the deadline for trade talks.
Von der Leyen said she had a “constructive and useful phone call with Boris Johnson” this afternoon. It was a marked softening of language from both sides.
Traders latched on to the more upbeat announcement and bought sterling when Asian markets opened.
The rally has continued, with the pound up 1.3 per cent to $1.34. It was one per cent higher versus the euro, at €1.103.
“The pound let out a huge sigh of relief at the start of Monday,” said Connor Campbell, market analyst at Spreadex, “even if it may be a case of deferred pain.”
Pound’s gain comes with little time left
Britain leaves the Brexit transition period on 31 December. The government has said it will not extend the transition, so a free-trade agreement must be reached before then.
However, the two sides remain apart on the issues of competition policy and fishing rights.
Various newspapers reported over the weekend that the EU had moved closer to the UK’s position on competition policy and state aid rules. The UK wants more leeway to makes its own rules once the transition ends.
Sterling’s gains weighed on the FTSE 100, however, with the index up just 0.1 per cent this morning. A stronger pound makes the overseas earnings of FTSE firms worth less in relative terms.
Some analysts remained pessimistic about the Brexit talks. “In spirit, if not in ink, the nature of the UK’s departure from the EU has arguably already been decided,” said Ayush Ansal, chief investment officer at the hedge fund Crimson Black Capital.
“Many will see any agreement arrived at at this late stage as a sticking plaster deal that simply buys time for the tangled web of sector-specific deals to be thrashed out during 2021 and beyond.”