"Brexit Deal Reached": Pound Sterling Rallies against Euro and Dollar

Above: File image of Michel Barnier, EU Chief Negotiator and Charles Michel, European Council President, address the media on the matter of trade negotiations following the EU Council Summit. Copyright: European Union.

  • Market rates: GBP/EUR: 1.1072 | GBP/USD: 1.3527
  • Bank transfer rates: 1.0860 | 1.3248
  • Specialist transfer rates: 1.0990 | 1.3432
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The British Pound has strengthened on news reports that the EU and UK have reached the outlines of a a post-Brexit trade deal.

The Bloomberg newswire said the outline of a Brexit trade deal has Been reached, citing officials.

"Negotiators are still putting the finishing touches to an accord, said the officials, who spoke on condition of anonymity. Others cautioned that the deal is yet to be finalized, and any announcement could be some hours away," says the report.

A number of journalists with contacts close to the negotiations had earlier reported a deal could be agreed today, however a final sticking point over battery imports had held up progress.

Harry Cole and Nick Gutteridge - two journalists with a proven record of delivering reliable unofficial briefings - say a Brexit trade deal is "in sight" today, however "a bizarre last minute spat about batteries," is preventing the shaking of hands.

The battery issue appears to concern the import of batteries for electric cars, a sector that will be of immense importance over coming years given the UK and EU's commitment to phasing out combustion engines.

According to numerous media sources, the EU Commission has told member states to prepare for meeting tomorrow morning if a deal signed off today, boosting hopes of an agreement within hours.

"It seems the deal is pretty much there. It’s a matter of announcing it today or tomorrow," an EU diplomat, told the Reuters newswire, saying the European Council, which represents the member states in Brussels, had started preparations to enable so-called “provisional application”, a fast-track implementation of the agreement.

The Pound-to-Euro exchange rate rallied and is now 0.80% higher on the day at 1.1090, the Pound-to-Dollar exchange rate is 1.00% higher at 1.3534.

Pound Sterling is higher against all its major currency partners.

Above: GBP/EUR on Wednesday, Dec. 23 with a spike recorded on media reports of an impending Brexit deal.

Secure a retail exchange rate that is between 3-5% stronger than offered by leading banks, learn more.

The spat over batteries is being considered by market participants as a positive sign, as it is of minor importance and both sides will likely have ample room to manoeuvre.

Indeed, EU diplomats told Gutteridge the EU's negotiating team has "space to move" on the issue and it's very unlikely to prove a dealbreaker. "I don’t think this is a real problem. Our car industry needs this too, and we could be fairly flexible."

"Brexit deal looking to be announced later today once members find agreement on electric cars....Is this a Christmas miracle or am I excited about opening an empty box here?" asks Simon Harvey, an analyst with MONEX Europe. "Regardless, cable liking it as it’s back above 1.35".

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Media reports out earlier said negotiators would continue trying to find a final compromise on fisheries and the level playing field through the course of today, with a view to striking a deal on Dec. 24.

"There is a basic deadline of Christmas Eve to get a deal. That will give the EU's legal services time to draw up a letter to send to the UK seeking provisional application of the treaty from Jan 1," says Tony Connelly, a reporter at Ireland's RTÉ who has a strong track record on covering the talks.

"GBP is advancing this morning and hopes have been raised once again that progress has been made and that an announcement could come as soon as tonight. With many issues now resolved according to reports from Brussels, the haggling over fishing appears to be what still needs to be agreed. If those reports are correct, then surely at this stage, a positive outcome is most likely," says Derek Halpenny, Head of Research, Global Market EMEA at MUFG.

If a deal is not reached by December 24 then talks will be expected to continue after Christmas.

The Pound is likely to remain volatile as long as talks are ongoing and unofficial briefings continue to be made, but major directional moves either higher or lower will only be likely once a final outcome is known.

The developments come at a difficult time for the UK economy which has seen many businesses shuttered once more as the Government tries to stem the spread of the SARS-CoV-2 virus.

A new strain of the virus has meant many countries have closed their borders to the UK, although many EU states will start reopening their borders to returning citizens from Wednesday.

Crucially, France will allow the flow of freight traffic again from Wednesday.

The government is meanwhile to put further areas of the UK into a Tier 4 lockdown, further squeezing the economy ahead of the turn of the year.

As a result the outlook for the Pound remains challenging, according to new analysis from Rabobank.

"The likelihood that larger swathes of the UK will be entering higher ‘tier 4’ restriction to prevent the transmission of the virus will significant dampen recovery prospects," says Jane Foley, Senior FX Strategist at Rabobank. "Latest developments drives home the reality that economic news will worsen before it improves and that the country is facing a tough start to the New Year."

Assuming a deal is struck, Rabobank forecast the Pound-to-Euro exchange rate will struggle to rise beyond 1.1236/1.1363.

Under a 'no deal' scenario, Rabobank forecast GBP/EUR will fall to 1.0752/1.0526, "dependent on whether the door is left open for talks on some sectors next year."

"Rising covid-19 cases, government wrangling, a widening of tier 4 restrictions in England, increased pressure on the public purse and, in all likelihood a continuation of negotiations with the EU on areas such as financial services and security suggest the GBP may be unable to shrug off its vulnerability or volatility in 2021," says Foley.