• Euro FX

Pound Sterling is King

EU and UK Agree Transitional Brexit Deal, More Gains Ahead say Analysts

Pound Sterling was the best performing major currency at the start of the new week on news a deal on a transitional Brexit period between the UK and EU has been agreed.

Chief EU Brexit negotiator Michel Barnier released a Draft Agreement on an implementation period, hailing the move as a "decisive step" towards an "orderly withdrawal" of the UK from the EU saying the vast majority of outstanding issues concerning the UK's exit had now been agreed.

"We were able to agree on a large part of what will make up an international agreement for an ordered withdrawal of the UK," says Barnier.

"Sterling is king on currency markets today after chief negotiators Barnier and Davis reached a conditional deal on a transition period after Brexit. The two parties also reached complete agreement on the financial settlement and on EU citizens rights," says Piet Lammens a currency analyst with KBC Markets in Brussels. "The pound rallied with GBP/USD breaching through 1.40 and EUR/GBP diving towards 0.8750. Avoiding a hard brexit facilitates the BoE’s tightening process."

Barnier also told journalists that negotiations are not yet at the end of the road and warned the Irish border remains an issue while also reminding his audience that nothing is agreed until everything is agreed.

Nevertheless, for Sterling the news represents a significant removal of uncertainty; it is uncertainty that has kept the currency under pressure in the run up to, and in the wake of, the June 2016 referendum.

“This is what businesses have been calling for since last summer. It brings a welcome gift of time for firms on both sides. While some sectors may need more than 20 months to prepare for post-Brexit life, this is a victory for common sense that will help protect living standards, jobs and growth. It shows what can be achieved when people and prosperity are placed above politics and ideology," says Carolyn Fairbairn, CBI Director-General.

“With a year to go, this breakthrough must set the pattern for the future. Other hurdles on the Brexit path now need to be cleared in the same spirit, including urgent resolution of the Irish border," adds Fairbairn.

The CBI head adds that a year ago both sides ruled out an early transition deal but "today both sides have agreed one. The voice of prosperity and evidence from the business community is being heard. This spirit of compromise must be maintained, as tough choices lies ahead on the route to a final deal."

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