06/12/2017 - Markets Remain Optimistic Over Brexit Deal

GBP

Sterling rebounded from a six-day low against the euro on Tuesday to trade flat on the day, with investors cautiously optimistic that a deal on opening up talks on post-Brexit trade would be reached by the end of the week.

Britain said it was a confident of a deal on Brexit just hours after a tentative agreement with the European Union over the Irish border was dashed by Prime Minister Theresa May’s kingmakers in Belfast.

After a tumultuous day on which a choreographed attempt to showcase the progress of Brexit talks was thwarted at the last minute, prompting a sell-off in the pound, May will try to gauge on Tuesday what her supporters in Northern Ireland’s Democratic Unionist Party (DUP) might accept.

May, who is now scrambling to thrash out a deal with the EU while keeping the DUP, which props up her minority government, and her own party onside, may return to Brussels as early as Wednesday to continue talks, a Downing Street official said.

Data showing Britain’s dominant services sector lost speed in November as prices charged by companies rose at their fastest pace in nearly 10 years - potentially adding to the country’s inflation problem - had little impact on the pound, with focus squarely on Brexit developments.

USD

The dollar rose for a second straight session on Tuesday, a day after posting its biggest daily rise in a week, as the currency continued to benefit from optimism surrounding U.S. tax reform.

On Monday, the Republican-controlled House of Representatives voted to go to conference with the Senate on tax legislation, setting up formal negotiations on the bill that could take weeks to complete.

Though the dollar has recovered some poise after falling to a two-month low last week, some market strategists expect further dollar gains next year to be limited, with the euro likely to be the beneficiary.

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