Sterling jumps on Brexit progress

Brexit progress lifts pound

European stock markets ended the day a little higher on Tuesday, the exception being the FTSE 100 which buckled under the pressure of a resurgent pound.

It seems not everyone shares Boris Johnson’s apparent pessimism around a Brexit trade deal. Of course, everyone else isn’t at the critical stage of a negotiation so it’s far easier to be openly optimistic. And let’s face it, while the nerves have crept in over the last couple of weeks, the markets have been remarkably steady. Traders have never lost confidence.

Reports this afternoon suggest progress is being made though on the level playing field, with fishing remaining an issue. But let’s face it, while talks could theoretically fail over the level playing field issue, there’s very little chance of it happening as a result of fishing. Today’s progress looks significant on the face of it. Perhaps a deal this week is possible.

Sterling took the news very well and is up almost 1% on the day, with its sights set on 1.35 once again. It’s been another volatile session but the optimism over the latest development is clear for all to see. The question now is how much further can it go if a deal is wrapped up this week? While I’m sure there’ll be a pop higher, I feel it’s so priced in at this stage that it may not be long until profit taking kicks in.

Let’s hope lawmakers in the US are making similar progress in their negotiations, with time fast running out for them to strike a deal on Covid relief. It does feel like we’re getting closer, albeit to a leaner package that addresses the near-term threats facing the country. But that’s better than the alternative of moving into 2021 without any support measures in place.

Should we get a Brexit and US stimulus double whammy this week, stock markets could end the year on a high, safe in the knowledge that various bad scenarios have been averted, while central banks remain fully behind the effort to support the global economy through the recovery. A great combination for the markets.

A number of central banks have topped up their stimulus efforts over the last couple of months and the Fed is widely expected to join them tomorrow. Longer-term yields have been creeping higher in recent months and while they’re still extremely low, the central bank will surely want to give them a nudge in the right direction.

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam