Pound jumps after Brexit breakthrough

Summary:

GBPUSD surges over 100 pips on draft deal agreement
Scope for UK-EU free trade area in the future
UK PM May to host cabinet meeting before addressing Commons at 2:30 PM GMT

There’s been a strong move higher in the pound in recent minutes following positive Brexit-related reports. EU and UK negotiators are said to have agreed upon a draft text of future ties post-Brexit and it appears that the relationship may more closely resemble the existing one than previously thought.

GBPUSD spiked over 100 pips in response to this news with the market clearly of the belief that this is a significant positive for the pound. Source: xStation

Selected comments from the draft are as follows:

Foresees equivalence for UK banks
EU, UK to commit to “deep” customs cooperation
To commit to build on “single customs territory”
States determination to replace the backstop in the future
EU is to recognise UK’s independent trade policy
Transition period can be extended for up to “one or two years”

Overall these comments appear to be a case of the EU supporting Theresa May’s deal and throwing their weight behind it. Sterling has rallied over 100 pips or close to 1% on this to trade back above the $1.29 level and given the recent negativity around Brexit there’s plenty of scope for a relief rally should this move gain traction.

GBPUSD has spiked through prior resistance on this news but still remains below the level it traded when Brexit secretary Raab resigned. Source: xStation

Looking ahead Theresa May is said to host a Cabinet conference call at 11 GMT before she will address the Commons at 2:30 this afternoon. While the initial reaction is no doubt positive there is still scope for negative developments and the market will likely continue to be highly sensitive to Brexit related headlines going forward.

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