Pound hits new two-year high as UK and EU on path to Brexit agreement

LaToya Harding
·Contributor
·5-min read
President of Commission Ursula von der Leyen delivers a speech, on the conclusions of "Rule of Law Conditionality and Own Resources", at European Parliament, in Brussels, on December 16, 2020. (Photo by JOHN THYS / POOL / AFP) (Photo by JOHN THYS/POOL/AFP via Getty Images)
European Commission president Ursula von der Leyen. Photo: John ThysPOOL/AFP via Getty

The pound hit a new two-year high against the US dollar (GBPUSD=X) on Wednesday on the back of the news that Britain and the European Union (EU) are heading towards a Brexit trade deal.

Sterling traded past levels last seen in May 2018, rising 0.58pc to $1.3535, breaking the $1.35 barrier. The currency is also 0.2% higher against the euro to €1.1087 (GBPEUR=X).

The rally comes as prime minister Boris Johnson told MPs in the Commons “there’s every opportunity” to strike a deal.

“There’s every opportunity, every hope that I have, that our friends and partners across the Channel will see sense and do a deal, and all that that takes is for them to understand that the UK has a natural right like every other country to want to be able to control its own laws and its own fishing grounds.”

He added: “Whatever happens in the next few days, I know that this country will prosper mightily on the terms that we agree with our European friends whatever they may be, whether they’re Australian or Canadian, we can go forward with a high heart and confidence into 2021 knowing that there are great opportunities for Scotland and the rest of the UK.”

Johnson’s comment comes as European Commission president Ursula von der Leyen told MEPs this morning that the next few days would be “decisive” in post-Brexit trade talks as time ticks away for the two parties to bridge some significant differences ahead of the end of the transition period.

She said: “As things stand, I cannot tell you whether there will be a deal or not. But I can tell you that there is a path to an agreement now. The path may be very narrow but it is there.”

“It is therefore our responsibility to continue trying,” she added.

Von der Leyen indicated that fishing rights remained a major obstacle to a deal but suggested some progress had been made on the so-called “level playing field” issue, which is a measure aimed at preventing unfair competition between London and Brussels.

Watch: UK – EU Agree to Go the Extra Mile in Brexit Talks

“On the level playing field, our aim is simply to ensure fair competition on our own market, very simple. And this is why we need to establish robust mechanisms. The architecture we’re working on rests on two pillars: state aid and standards,” the European Commission president said.

“On state aid, we have made progress based on common principles, guarantees of domestic enforcement and the possibility to autonomously remedy the situation when needed. On standards, we have agreed a strong mechanism of non-regression. That’s a big step forward.”

Discussions had previously stalled over three of the most contentious issues for both sides — fisheries, ensuring fair competition guarantees, and ways to solve future disputes. Neither side has been ready to concede on these sticking points.

Von der Leyen and European Council president Charles Michel were among those speaking at the European parliament on Wednesday.

Pound dollar
Sterling is currently trading past levels last seen in May 2018, breaking the $1.35 barrier

Although Britain left the EU on 31 January, it will fully leave the bloc on 31 December 2020. Britain and the EU missed their 13 December deadline to reach a Brexit deal one way or another, but agreed to continue negotiations.

In a joint statement on Sunday (13 December), UK prime minister Boris Johnson and Von der Leyen said it was “responsible at this point to go the extra mile.” The pair agreed to extend talks without setting a firm deadline.

Downing Street has said that leaving the Brexit transition period without a trade deal remains the most likely outcome but noted that “we have made some progress”.

The prime minister’s official spokesman said on Wednesday: “We have made some progress in some areas but it still remains that there are some significant gaps.

“Our position is still that we want to reach an FTA (free trade agreement) but it is still the case that the most likely outcome is still leaving on Australia terms.”

BBC Newsnight’s political editor Nicolas Watt said on Tuesday night that the pending agreement could satisfy Brexit supporters.

“Big buzz in the last hour among Tory MPs that the UK is heading towards a Brexit deal with the EU. Eurosceptics being reassured they will be happy,” he wrote on Twitter.

However, if a deal cannot be agreed the UK will be forced into a no-deal — or hard — Brexit, adopting World Trade Organisation (WTO) rules.

READ MORE: UK and EU agree to extend Brexit talks following call

On Tuesday, Boris Johnson warned that trade talks between the EU and UK could yet come to nought. The prime minister told his cabinet “ending the transition period on Australian-style terms remained the most likely outcome,” his official spokesperson told journalists.

Sealing trade deals with major economies is high on the agenda for the UK government as it will lose all the favourable conditions with its biggest trading partner — the EU — when it stops being a member.

Last week the UK signed a new continuity deal with Singapore which will cover a trade relationship worth more than $22bn (£17bn).

Earlier this month, the British ambassador to Egypt also signed an agreement with the country’s assistant foreign minister for Europe to strengthen political and trade ties between the two nations after the Brexit transition period.

The deal secured between Sir Geoffrey Adams and Badr Abdelatty will allow British firms and consumers to benefit from continued preferential access to the market, which will help boost trade and investment.

In under two years, the UK Government has signed or agreed in principle Free Trade Agreements (FTAs) with 54 countries. Total UK trade with these countries was worth £166bn last year.

The UK’s deal with Egypt brings this number up to 55 countries.

WATCH: What happens if no Brexit trade deal is struck?