Sterling rallied overnight and has continued to do so this morning upon reports that the UK and European Union (EU) are close to making a breakthrough on the Brexit bill figure. Despite the welcomed news for many Brits, remaining cautious is paramount as the complications of Brexit continue to unfold, bringing with it further market uncertainty.
The reported settlement in principle figure – or how much money the UK will pay the EU after leaving the Union – ranges from €45-€55bn (The Telegraph) and represents the UK bowing to EU pressure on the so-called divorce bill in a bid to start trade discussions. However, the UK agrees total liabilities worth €100bn, but will aim to pay less than half of this in net payments over the long term.
Brett Thomas, head of dealing at FX firm Godi Financial, has said reaching agreement on the divorce bill is just one of the three key issues the EU wants addressed before allowing talks to progress on to the second phase and a future trade deal. The UK still needs to provide solutions to the Northern Ireland and the Republic border issue, and assurances around citizen rights.
Following reports that an agreement had been reached on the divorce bill, sterling rallied aggressively in FX space, with GBP/EUR recovering from yesterday afternoon’s low of 1.1130 to reach a high of 1.1313 earlier this morning, up 1.6%.
Similarly GBP/USD recovered from a low of 1.3223 late yesterday afternoon to hit a high of 1.3430 earlier this morning, representing an eight-week high and an overall gain of 1.5%.
Brett Thomas, Head of Dealing at Godi Financial, commented:
“As we have consistently seen since the pound’s collapse following the referendum back in 2016, any perceived positive news around Brexit has proven beneficial for sterling. Ultimately markets and investors desire stability and certainty, and any breakthroughs in the Brexit process that may potentially pave the way for a smooth transition, would be welcomed by the markets in general.
“It’s important not to get too carried away, as recent history proves things can change very quickly and businesses with currency market exposure can be caught short if hedging is not part of their financial strategy. The terms still requires agreement from all 27 of the EU member states. However, this latest news does seem to be a positive development in an already uncertain and complicated process.”