Sterling has risen to a two-month high after the UK and the European Union reached a preliminary agreement on the UK's Brexit bill.
The UK currency rose to around 88.4p against the euro, from 88.8p yesterday, a trend which if it continues will provide some relief for Irish exporters.
Sterling rose across the board against all major currencies, with money markets now pricing a 0.25 of a percentage point rate hike by the bank for September next year, compared with November 2018 earlier.
Negotiators in the UK and the EU have reached an outline deal on the divorce bill that Britain will pay when it leaves the bloc, clearing a hurdle in talks and leaving the issue of the Irish border as the last major obstacle to starting trade negotiations.
“It’s clearly a positive catalyst for the pound although there is still a risk that the Irish border issue could prevent a breakthrough in Brexit talks next month,” Lee Hardman, a currency strategist at MUFG in London, said in e-mailed comments.
“Nevertheless, we are more confident in our bullish pound outlook, which rests on the assumption that a timely transitional arrangement is agreed early next year.”
Sterling climbed as much as 0.7 per cent to $1.3429, the highest level since September 29th, before falling back slightly. Against the euro, sterling went as low as 88.37p at one stage.
Sterling touched 90p against the euro in mid-October, amid concerns over the Brexit talks and evidence of a weakening economy. Any rate over 90p is seen as problematic for many Irish exporters.
The UK currency has advanced over the last three following the Bank of England’s November 2nd decision to raise rates for the first time in 10 years.
Progress in Brexit talks could make further policy tightening more likely, should the economy’s performance exceed the bank’s expectations. However sterling could also be vulnerable to any further signs of difficulties in the talks.
-Bloomberg
