Pound to Euro Moves Higher as Brexit Deal Edges Closer

GBP EUR Starts the Week with 1.1800 Test

The pound to euro exchange rate was higher by 0.345% in early trading on Thursday as the U.K. and European finally appear to be nearing a Brexit deal. The two sides look set to unveil post-Union trade accord as negotiators worked overnight to finalize a compromise deal.

Sterling and the euro were trading nervously this week as investors feared being caught on the wrong side of the see-saw headlines.

The GBP to EUR rate was trading above 1.1100 as traders start to price in a deal before leaving for Christmas day celebrations.

Prime Minister Set to Make a Deal Announcement

Prime Minister Boris Johnson is expected to announce a possible deal at 11:00. Any Brexit deal could have a limited effect on the currency rates after Johnson imposed tougher restrictions on more of the country due to virus fears.

The announcement of an agreement will formally complete a historic British separation from the EU after four and a half years. A compromise has been hard to find to ensure tariff and quota-free trade in goods, but the talks were held up ahead of Boris Johnson’s election win as Theresa May seemed unable to push through the UK’s referendum choice in the face of a hostile negotiating partner and opposition parties.

The outline of a deal was said to be agreed on Wednesday and the negotiators will now formalize the wording of the agreement in Brussels. This will now give British businesses only a week to absorb the new trading arrangements, but this includes the festive season.

A final agreement on Brexit would be a welcome announcement for the financial markets in order to remove one of the risk issues from markets as we exit a chaotic year. Sterling has also been boosted by news that Canada had also signed a stop gap deal to avoid tariffs with the U.K. after their previous arrangement was tied to the EU.

Brexit Done and Back to the Virus

If Brexit talks are finally wrapping up then the markets will go back to the virus as the driver of pricing in the new year. We are now in a battle between the vaccine rollout and the latest set of lockdowns in Britain.

Many are holding out hope that the vaccination program will lead to an easing of restrictions in the spring, but Matt Hancock has warned a new spread could put that in jeopardy.

The UK Treasury announced 800 million pounds in fresh money for the devolved administrations in Scotland, Wales and Northern Ireland to help them support companies and workers damaged by the lockdown strategies. This has led to almost 17 billion pounds in total cash being handed out to regional governments since the March budget. This added spending will add to headwinds for the UK but all developed countries are embarking on similar spending programs.

The pound to euro rate could move as high as 1.280 if a deal is announced, while the 1.0850 level was the recent lows.

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