LONDON – The British pound jumped close to levels not seen in the past 31 months on Thursday as investors bet the UK and the European Union would conclude a highly anticipated Brexit trade deal.
The British pound climbed 0.8% to around $ 1.3593, after previously hitting a session high of $ 1.3616. Earlier this month, the currency hit a 2020 high of $ 1.3624, a level it hasn’t reached since May 2018.
Brexit negotiators on both sides are said to be on the cusp of a narrow free trade deal on Thursday. It comes after months of tense political bickering over some major bottlenecks.
“This is going to be a meager deal,” Jane Foley, chief FX strategy at Rabobank, told CNBC on Thursday. “The general feeling is that the services will be out in the cold and that talks will continue next year.”
Irish Foreign Secretary Simon Coveney said a post-Brexit trade deal was expected on Thursday, after a “last-minute hiccup” delayed an announcement.
The timing remains unclear, with Reuters in London at noon citing both an EU and a UK official saying the deal could be “hours away”. Press conferences scheduled to begin Thursday were postponed as both sides finalized the “small text” of an agreement on fishing rights, Coveney said.
Confirmation of a deal would conclude an extensive period of tense negotiations over the future trade relationship between Britain and the EU. Both sides disagreed on a number of important issues, not least fisheries.
The EU wants to maintain access to British waters for its fishing fleets, while the UK wants to largely restrict these fishing rights. In a no-deal scenario, EU access to British waters could end abruptly, and vice versa, and the UK had even threatened to deploy the military to protect British waters.
Looking ahead to next year, Berenberg senior economist Kallum Pickering said a deal would provide support for the pound.
By removing a major downside risk to the UK economy, both in the short and long term, a deal would allow for significant investment in the UK and support the recovery once the ongoing coronavirus shock begins to fade, providing a positive backdrop . for UK equities and sterling heading towards 2021, ” he said in a note on Thursday.