Christmas came early for the pound after London and Brussels finally struck a Brexit deal on Thursday, just a week before Britain’s official separation from the bloc at the end of the year.
European Commission President, Ursula Von Der Leyen tweeted: “We now have a fair and balanced agreement with the UK. It will protect our EU interests, ensure fair competition and provide predictability for our fishing communities. Europe is now moving on.” While Boris Johnson said: “We have taken back control of our laws and our destiny.”
The pound to dollar rate briefly jumped above the 1.36 level as both parties managed to sidestep what could have been an abrupt severance and uncertain future. Despite climbing more than 0.8 per cent to come within touching distance of its highest level since May 2018, the pair could not maintain its momentum – and not just because much of the Brexit deal optimism had already been baked into the market.
Investors also began pouring cold water on hopes that the deal would prove the beginning of a bullish spell for the pound. Several factors were responsible for their negative sentiment towards the currency: the limited scope of an accord that excludes services and the impact of the worsening pandemic on the UK economy. By Friday evening, the pound vs dollar rate had fallen below the 1.34 benchmark, before meandering its way to within a whisker of 1.35 this morning.
Dollar Slips on US Stimulus
The pound was aided by dollar weakness after Donald Trump signed a massive coronavirus relief and government funding package into law Sunday. The outgoing President had previously held up the $900 billion coronavirus relief bill for nearly a week – propping up the dollar in the process – before signing off on the stimulus package, which includes $600 checks.
The Christmas holiday period means economic data is thin on the ground in the UK over the next few days. Therefore, all roads lead to the Houses of Parliament for the pound this week, where MPs will vote to approve the trade deal with the EU on Wednesday. Yesterday, EU ambassadors gave the green light to provisionally apply the post-Brexit trade deal with the United Kingdom from 1 January – and the UK Parliament is expected to pass it tomorrow.
From the US we have the S&P/Case-Shiller Home Price Indices today, which examines changes in the value of the residential real estate market in 20 regions across the country.
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