Friday 20 November 2020 11:08 am

Sterling edges higher on renewed Brexit deal hopes

Sterling edged higher against the euro and the dollar after an European Union official said the bloc and Britain are very close to agreement on most issues, even if they are still at odds over three main points.

After being flat in earlier trade, the pound gained 0.2% versus to stand at 89.31 pence per euro at around 9:40am. Versus the dollar, it was up about 0.1% at $1.3282.

As time runs out for a trade deal, an EU official told ambassadors in Brussels that the EU and Britain are “both close” to reaching an agreement but differences persist over fishing rights, guarantees of fair competition and ways to solve future disputes.

Read more: UK and Canada ‘on the brink’ of agreeing a trade deal

Britain left the EU in January and is in talks with the bloc on a future trading relationship. The transition period ends on 31 December.

Markets have been buoyed by reports that both sides are keen to reach a deal. 

“For some weeks GBP has been supported by the view that some kind of deal will be announced this month. This is still the favored outlook, though scope for any relief rally is set to be limited by the likelihood that any deal will be a skeleton one,” said Jane Foley, head of FX strategy at Rabobank.

Brexit negotiations were briefly put on pause yesterday following news that a member of the EU negotiating team had tested positive for coronavirus. The negotiations will now continue remotely to clinch a trade deal that would come into force in just six weeks.

Read more: MPs launch inquiry with eye to bolstering City after Brexit

Analysts at ING said that there is scope on the upside for sterling against the dollar, while they saw limited upside versus the euro given the lack of a “material announcement on the negotiations.”

Foley added that if “no compromise is announced next week, growing fears about a no trade deal situation are likely to creep back into the market leaving GBP vulnerable.”