Sterling jumps as draft Brexit withdrawal text agreed

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14 November 2018

thomasdodds

Sterling spiked back above the 1.30 level against the US Dollar on Tuesday, jumping by around one percent for the day on the news that a draft Brexit agreement was completed.

T
he UK currency has been on a rollercoaster ride in the past few weeks, buffeted in each direction by contrasting headlines regarding progress on a solution to the contentious Irish border issue. An accord between the UK and EU does, however, appear to have been reached, with reports yesterday suggesting that a draft Brexit withdrawal text was agreed, including how to avoid a hard Northern Irish border. Theresa May is expected to chair a cabinet meeting today in order to discuss the terms of the deal with cabinet members.

While a potentially decisive step towards a full agreement, it is worth noting that the draft withdrawal text now needs Parliament’s approval. With Jeremy Corbyn’s Labour Party almost certain to vote against it regardless of the terms, May will need to convince staunch Brexiteers within her own Tory Party over the deals merits. This could prove the real test for the Pound leading up to the 13-14th December EU summit.

Earlier in the session, the latest UK labour report was mixed. We did see another encouraging uptick in wage growth, which rose to a fresh near decade high at 3.1%. The jobless rate did, however, tick upwards unexpectedly to 4.1%. Inflation data this morning also did little to assist the Pound, with both the headline and core rate coming in unchanged at 2.4% and 1.9% respectively.

Euro edges higher, oil prices sink

The Euro edged higher against the US Dollar on Tuesday, briefly rallying back above the 1.13 level before trailing back below it this morning. Increased optimism surrounding Brexit once again helped the common currency. Almost every major currency was able to rebound versus the greenback, buoyed by a general improvement in risk sentiment amid a stabilisation in stock markets. Reports out of Italy that the country’s government agreed on a 2.4% budget deficit and 1.5% growth target for next are positive, given that the EU last month rejected its budget proposals. Whether these new proposals will be accepted remains to be seen.

Elsewhere, one of the major headlines in the financial markets was the sharp decline in global oil prices on calls from Trump for no production cuts from Saudi Arabia. Prices were down around 8% at one stage, unsurprisingly dragging oil dependent currencies with it.