Sterling rose on Thursday, hitting its highest levels against the dollar since 2018 following the announcement of a Brexit trade deal between the UK and EU. Investors reacted positively to Chancellor Rishi Sunak’s agreement and backed sterling as a safe haven asset. The deal ensures that there will be no tariffs or quotas imposed on
Sterling rose on Thursday, hitting its highest levels against the dollar since 2018 following the announcement of a Brexit trade deal between the UK and EU. Investors reacted positively to Chancellor Rishi Sunak’s agreement and backed sterling as a safe haven asset. The deal ensures that there will be no tariffs or quotas imposed on goods traded between the two regions. The pound also gained ground against the euro, rising above 1.15 for the first time in over three years, before slipping back slightly. In this blog post, we take a closer look at how investors have responded to Sunak’s Brexit deal and what impact it will have on Sterling in the long term.
Sterling gains after Sunak’s Brexit deal
Sterling gained against the US dollar and the euro on Thursday after Chancellor Rishi Sunak agreed a Brexit deal with the EU.
The deal, which was announced after late-night talks in Brussels, will see the UK leave the EU’s single market and customs union on December 31st.
However, there will be a transition period until December 2022, during which time the UK will continue to follow EU rules.
Sunak said that the deal was “a good one for the UK” and would allow businesses to “plan with certainty for the future”.
The pound had been trading at around $1.33 before the announcement of the deal, but rose to $1.34 in early trading on Thursday. Against the euro, it rose from €1.12 to €1.13.
What the deal entails
Investors have reacted positively to the Brexit deal announced by UK Chancellor Rishi Sunak. The deal, which was agreed upon by the EU and UK negotiators overnight, will see the UK leave the EU on 31 December 2020.
Sunak said that the deal is a “good one” for the UK and will protect jobs and businesses. He added that it includes a “comprehensive free trade agreement with zero tariffs and quotas”.
The pound sterling has risen against both the US dollar and the euro since Sunak’s announcement. Analysts believe that this is due to investors feeling more confident about the UK’s economic prospects after a Brexit deal has been reached.
So what does this Brexit deal entail? Here are some of the key points:
– The UK will leave the EU single market and customs union on 31 December 2020. This means that there will be new customs procedures and rules of origin for goods traded between the UK and EU.
– There will be no hard border between Northern Ireland and Ireland. This is achieved through a combination of technology, customs declarations, and regulatory alignment.
– There will be a free trade agreement between the UK and EU, with zero tariffs or quotas on goods traded between them. This does not cover services, which make up 80% of the UK economy.
– There will be limited fishing rights for European boats in British waters, and vice versa. The exact details are still to be negotiated.
How investors are reacting
Sterling’s gains on Wednesday were driven by optimism around the Brexit deal announced by UK Chancellor Rishi Sunak.
Sunak’s deal includes a revised political declaration on the future relationship between the UK and EU, which investors see as more favourable to the UK than the previous agreement. This has led to increased confidence in the UK economy and Sterling.
The Pound has also been boosted by positive economic data, with retail sales and industrial production both beating expectations in October. This has further strengthened investor confidence in the UK economy.
Looking ahead, Sterling is likely to remain well supported as investors continue to react positively to Sunak’s Brexit deal and positive economic data.
What could happen next
As the final details of the UK’s Brexit deal are ironed out, investors are reacting positively to the news, with the pound sterling gaining against both the euro and the dollar. This is a relief for many businesses and individuals who were worried about the impact of a no-deal Brexit on the economy.
Now that a deal has been agreed, there is much more certainty about what will happen next. The UK will leave the EU on 31st January 2020 and then enter a transition period until 31st December 2020. During this time, nothing much will change – businesses will still be able to trade with the EU and there will be no customs checks or border controls.
After 31st December 2020, things will start to change. The UK will no longer be part of the EU single market or customs union, so there will be new trade barriers in place. These could include tariffs on goods traded between the UK and EU, as well as new customs checks and bureaucracy. The government has said that it wants to negotiate a free trade agreement with the EU which would minimise these barriers, but it is not yet clear how successful this will be.
There is also uncertainty about what will happen to immigration after Brexit. Currently, citizens of European countries have freedom of movement within the EU, meaning they can live and work in any member state without needing a visa. After Brexit, this will no longer apply to UK citizens – although negotiations are ongoing about whether there could be some exceptions
In conclusion, the sterling has gained strength in response to Sunak’s Brexit deal. Investors have seen the potential of a stable relationship between the UK and EU, with an agreement in place for trading and other matters. This is likely to be beneficial for both sides and could provide an opportunity for increased foreign investment into the British economy. Overall, investors have responded positively to this news, providing a boost of confidence that may well continue into 2021.