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LONDON: The pound jumped as a draft accord between the UK and European Union backed a freetrade pact and close cooperation after Brexit.
Sterling gained more than 1 per cent to a one-week high after the declaration removed some uncertainty about the relationship after the UK leaves the bloc, its largest trading partner.
The statement on futures ties, being negotiated ahead of an EU summit on Sunday to sign off on a Brexit deal, also makes clear that both sides have a “determination” to replace the contentious backstop to avoid a hard border with Ireland.
“Headlines seem to be ticking the right box with regard to FX sentiment, talking about free trade,” said Stuart Bennett, head of Groupof-10 currency strategy at Banco Santander.
Still, the news is not enough to erase doubts about whether the divorce agreement will be approved by lawmakers in the House of Commons during December.
“The vote in Parliament is still the main challenge,” said Mikael Olai Milhoj, an analyst at Danske Bank.
Neil Jones, head of hedge fund currency sales at Mizuho Bank, said investors were taking advantage of the rally and selling sterling as they remain skeptical of the prospects for the parliamentary vote.
The pound rose as much as 1.2 per cent to $1.2927, its strongest level since November 15, and was trading at $1.2870 as of 12:18 pm London time.
It gained 0.6 per cent to 88.59 pence per euro.
UK government bonds fell, with the 10-year yield rising three basis points to 1.42 per cent, while the benchmark FTSE 100 Index dropped 1 per cent.
In an indication of the fragility of any gains in the currency, the pound briefly pared most of Thursday’s gains after the EU said some Brexit issues have yet to be resolved.
UK Prime Minister Theresa May is aiming to please rebels in her party and Northern Ireland’s Democratic Unionist Party, which she relies on for her parliamentary majority.
