Sterling jumps on hopes Brexit negotiators are nearing a deal

Sterling jumped and British stocks rose as traders placed bets on the UK striking a post-Brexit trade deal with the EU before Christmas. The Iseq was ahead by close to 0.9 per cent.

The UK currency, which had hit a two-year high above $1.36 last week, advanced 1.3 per cent on Wednesday to $1.3529 on signs that significant progress had been made in trade talks between Brussels and the UK. Against the euro, the pound rose 0.9 per cent to €1.108.

British officials said a deal was “possible” as early as Wednesday, even though negotiators were still haggling over fisheries and other issues – including competition rules for a “level playing field”.

UK prime minister Boris Johnson and European Commission president Ursula von der Leyen had begun an intensified phase of "hotline" Brexit talks with the aim of breaking the deadlock before the Christmas holiday, Robert Jenrick, UK communities secretary, said.

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London’s benchmark FTSE 100 index gained 0.3 per cent, while the FTSE 250 index of mid-cap companies, which is considered to be more sensitive to fluctuations in the UK economy, rallied 1.4 per cent. Investors shifted away from UK government bonds, considered to be haven assets, pushing yields higher. The 10-year gilt yield was recently up 0.1 percentage point at 0.29 per cent.

Derek Halpenny, currencies strategist at MUFG in London, said "hopes have been raised once again that progress has been made and that an announcement could come as soon as tonight".

“With many issues now resolved according to reports from Brussels, the haggling over fishing appears to be what still needs to be agreed,” said Mr Halpenny. “If those reports are correct, then surely at this stage a positive outcome is most likely.”

Lorries

Lorries also began trickling into the UK from France in the early hours of Wednesday, ending a blockade triggered by fears over a new variant of coronavirus discovered in Britain. The disruption to crucial freight routes had helped to send sterling tumbling below $1.32 on Monday, with concerns over the trade stoppage adding to angst over Brexit talks.

"Sterling trades between the two extremes of there being no-deal, where the pound goes to $1.10, and one being announced, where the pound heads towards $1.50," said Savvas Savouri, chief economist of hedge fund Toscafund, which is bullish towards UK assets.

Nadège Dufossé, head of cross-asset strategy at Luxembourg-based fund manager Candriam, said European equity markets were also trading higher because of the prospect of a Brexit trade agreement.

“Our main scenario remains that of a last-minute deal,” she said, but she added that “we’ve bought some protection in the options market against it”. – Copyright The Financial Times Limited 2020