Sterling enjoyed a rally yesterday after news that Britain and the European Union had agreed on a text setting out their post-Brexit ties. This agreement in principle sets the framework for the future relationship between the two, and now sets the EU summit on Sunday up to be a potentially big Market event. As Britain is due to leave the EU on March 29th 2019, hopes now rest on the possibility that this can be rubber-stamped on Sunday.
This pound strength came despite the fact that only the draft agreement has been reached, but many details such as the Irish Border and Gibraltar remain unsolved. Traders instead reacted with optimism to the idea of both parties having a trade relationship on goods that is as close as possible. This sentiment has encouraged more demand for the pound, despite the draft text securing no improvements for Britain on future trading relations in financial services with the EU.
The news overall can be viewed as a positive from an investor perspective but unless political support is garnered, these gains are unlikely to sustain.
07.00 – EUR: German GDP (YoY) (Q3); expected to remain unchanged at 1.1%