Pound jumps on news of UK-EU draft Brexit agreement

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22 November 2018


Sterling jumped by around one percent against both the US Dollar and the Euro on Thursday morning on the news that the UK and EU had agreed on a draft Brexit text.

ccording to the European Council, a political declaration on the terms of the divorce has been ‘agreed in principle’. At first glance, the most significant aspects of the agreement include the following points:

  • The future economic partnership between the UK and EU will ensure no tariffs, fees, charges or quantitative restrictions across all sectors. The agreement will ‘build and improve on the single customs area’.
  • Parties envisage having a trading relationship that is ‘as close as possible’.
  • Parties to aim to deliver liberalisation in trade in services ‘well beyond the parties WTO commitments’.
  • Transition period (which is currently set to end at the end of December 2020) can be extended ‘for up to one or two years’.
  • UK-EU to also consider technological solutions to prevent hard Irish border.

These are all encouraging developments that suggest the UK is making progress towards a softer Brexit agreement that would ensure close ties to the European Union following its exit from the bloc. Sterling has reacted in unsurprising fashion, hitting a one week high versus the US Dollar and a six day high on the Euro (Figure 1).

Figure 1: GBP/USD & GBP/EUR (22/11/2018)

The big test for the Pound remains whether Theresa May will actually be able to force the draft text through a government vote. It was pretty clear last week that the majority of MPs were not in favour of it, particularly heavy pro-Brexiters. A smooth Brexit transition period continues to be far from guaranteed and the Pound is likely to remain highly susceptible to additional wild Brexit related swings leading up to Sunday’s EU summit.

Next up will be a speech by Theresa May, scheduled to make a statement to parliament at 14:30 GMT.