Pound hits year high against dollar as Brexit trade deal hopes grow

Larry Elliott
·2-min read
<span>Photograph: Vickie Flores/EPA</span>
Photograph: Vickie Flores/EPA

Increasing hopes that an eleventh-hour trade deal will be agreed between the UK and the EU has sent the pound to its highest level against the dollar in almost a year.

With an agreement between London and Brussels thought to be close, sterling rose to $1.35 against a generally weak US currency for the first time since 13 December 2019, the day after the Conservatives secured an 80-seat majority in the general election.

Shares in London also closed at their highest level since the early stages of the Covid-19 crisis, with the FTSE 100 up 26 points at 6490.

The jet engine-maker Rolls-Royce was the top riser, up 15%. Shares in the hotel operator Whitbread, another company badly hit by the pandemic, rose by 4%.

Unlike on Wall Street, where shares have reached fresh highs in recent weeks, the FTSE 100 remains 1000 points below its pre-crisis levels.

The stock market has been bolstered in recent days by positive news about vaccines for Covid-19, but were given an extra fillip by trade-talks optimism.

“There’s a good chance we can get a deal across the line in the next few days,” Ireland’s foreign minister, Simon Coveney, told the Irish radio station Newstalk. “We are in the space of days not weeks.”

His comment were enough to give the pound support against an out-of-favour dollar, said Conor Campbell, an analyst at SpreadEx. “Surging 1% against the dollar and 0.4% against the euro, the pound appeared to rise after Simon Coveney claimed that there’s a good chance we can get a deal across the line in the next few days.

“It’s the kind of comment that has been heard before in the last couple of weeks, without anything materialising. Nevertheless, with the deadline looming, sterling will take what it can get.”

The pound’s rise was in part related to a fall in the value of the dollar amid signs of bipartisan support in Washington for a new stimulus package. The increasing number of bets in derivative markets that sterling would be weaker in a month’s time reflected concern that the Brexit trade talks could still end in failure.

Negotiations centre on fish, state aid and rules to settle future disputes. One senior EU diplomat said the Brussels team, headed by the bloc’s chief negotiator, Michel Barnier, had moved to “within millimetres” of the limits of their negotiating mandate, so it was up to London to compromise if a deal is to be reached.