Sterling nears 2020 peak as buyers anticipate a Brexit breakthrough

LONDON – The British pound jumped close to levels not seen in 31 months on Thursday as investors bet the UK and the European Union would sign a long-awaited Brexit trade deal.

The pound sterling rose 0.8% to around $ 1.3593 after previously hitting a session high of $ 1.3616. Earlier this month, the currency crossed a 2020 high of $ 1.3624, a level it hasn’t reached since May 2018.

Brexit negotiators on both sides are said to be close to signing a tight free trade agreement on Thursday. After months of tense political disputes, a number of important sticking points come up.

“This is going to be a poor deal,” Jane Foley, head of FX strategy at Rabobank, told CNBC on Thursday. “The general feeling is that the services will be left out in the cold and the talks will continue for the next year.”

Irish Foreign Secretary Simon Coveney said a post-Brexit trade deal was expected Thursday after a “last-minute problem” delayed an announcement.

The timing is still unclear. Reuters quotes an EU and UK official at lunchtime in London who said the deal could still be “hours away”. The press conferences scheduled for early Thursday have been postponed as both sides finalize the “little text” of an agreement on fishing rights, Coveney said.

Confirmation of an agreement would end a long period of tense negotiations on future UK-EU trade relations. Both sides disagreed on a number of key issues, not least on fisheries.

The EU wants its fishing fleets to have access to UK waters, while the UK wants to restrict these fishing rights to a large extent. In a no-deal scenario, EU access to UK waters could end abruptly and vice versa, and the UK had even threatened to use the military to protect UK waters.

Looking ahead to next year, Berenberg senior economist Kallum Pickering said a deal would provide support for the pound.

“By eliminating a major downside risk to the UK economy in the short and long term, a deal would unlock significant investment in the UK and support the recovery once the ongoing coronavirus shock wears off, and provide a positive backdrop for UK stocks and sterling on its way into.” Year 2021, “he said in a note on Thursday.

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