The pound has found plenty of support during Thursday’s trading, as reports of a potential Financial Services deal for the UK post Brexit surfaced. It was reported that UK Prime Minister Theresa May had struck a deal with Brussels, which if substantiated, could be a major plus for UK businesses hoping to operate within the single market, following next March’s Brexit deadline.
There was also a widely circulated letter from UK Brexit secretary Dominic Raab, who suggested a final deal with the EU could be reached by November 21st.
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These reports brought some renewed optimism to the markets, which were still reeling from the latest Brexit deal/no deal reports only a couple of weeks ago. Investor confidence soared on yesterday’s renewed positivity and the pound immediately made gains against EUR and USD, hitting 1.1395 & 1.3030 respectively at its high.
The key question now though is are we seeing history repeat itself with another false dawn, or is this finally the breakthrough the markets and investors have been crying out for?
If the early reports are anything to go by, then the former could well be the undesirable answer. Following the initial furore regarding the potential financial services agreement, whereby this key economic sector would have continued access to the single market post Brexit, a counter report quickly brought the markets crashing back down to earth.
The EU’s chief negotiator Michel Barnier claimed the reports were “misleading”, claiming it would be up to Brussels to recognise the UK rules as “equivalent”. Downing Street also described the story as “speculative”, whilst claiming that there was no set date for Brexit talks to finish, seemingly at odds to Dominic Raab’s comments.
It is difficult to say whether this is just political slur to try to keep expectations in check, or is it yet further premature reports of a resolution to this agonisingly drawn out saga.
The Bank of England (BoE) kept interest rates on hold at 0.75% yesterday, although BoE governor Mark Carney helped calm fears over a no-deal Brexit, stating that he still expected London & Brussels to come to an agreement. He also claimed that the Central Bank would not necessarily be cutting rates as it did after the EU referendum result, “as a response to a chaotic Brexit”.
The meeting came and went without any major controversy, and Carney claimed that the Central Bank would assess the impact of any final deal or no-deal before deciding on its response.
Whilst his speech was by no means ground-breaking, his calming tone seemed to help support sterling’s rise yesterday, which continued throughout the afternoon's trading.
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