Pound enjoys ‘small relief rally’ after post-Brexit deadlock broken

The pound enjoyed a brief resurgence against the US dollar after Britain and the EU secured a new post-Brexit deal for Northern Ireland, signalling some good news for the future of cross-border trade.

Sterling leaped 0.95% higher to 1.255 US dollars in the hour after the long-awaited deal was confirmed, and was 0.3% up to about 1.136 euros.

Prime Minister Rishi Sunak hailed the deal as a “decisive breakthrough” after meeting European Commission president Ursula von der Leyen in Windsor.

Mr Sunak said the deal removes trade borders in the Irish Sea, and is set to end long-running tensions following the UK’s withdrawal from the EU.

However, the value of the pound eased back as Mr Sunak and Ms von der Leyen began speaking at a press conference in Windsor, dipping to about 1.2028 dollars partway through the conference.

Meanwhile, top shares on the FTSE 100 Index saw a brief boost following the announcement, jumping to around 7,946 when the pair started speaking.

It then fell as low as 7,927 during the press conference, although it was still trading substantially higher than Friday, when markets were knocked by higher than expected US inflation figures.

The deal is set to finalise Brexit more than six years after the 2016 referendum, and to resolve the trading issues created by the Northern Ireland Protocol.

But there are lingering concerns over the challenge ahead for Mr Sunak, who still has to win the approval of the Democratic Unionist Party (DUP) to ensure powersharing can be restored in Northern Ireland, and amid pressure on the Prime Minister to give MPs a Commons vote.

Mr Sunak insisted Parliament will have a vote “at the appropriate time”, adding: “I think it’s important we give everyone the time and the space they need to consider the detail of the framework.”

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “There’s extra jaunt to the upbeat mood on the markets now that a deal to break the trade impasse between the EU and the UK has finally been struck.

“The FTSE 100 and FTSE 250 edged higher as an extra jot of confidence was restored in the UK economy.

“The pound has jumped above 1.20 US dollars in a small relief rally that the deadlock has been broken, but there is still a long way to go before these better relations will herald a significant recovery in cross border trade.

“Brexit has cast such a long shadow over the UK economy that the lights of opportunity will need to shine more brightly before the pound undergoes a big further rebound.

“It’s still down some 14% on its pre-pandemic level as the strength of the dollar continues to limit gains, given interest rates expectations in the US.”

Walid Koudmani, chief market analyst at XTB, said the EU-UK deal regarding Northern Ireland will end a lengthy period of uncertainty.

But he added that the pound is likely to see heightened volatility until any deal is finally given the all-clear by the DUP and Tory eurosceptics.

“Any further roadblocks in the process could prove to be quite counterproductive for the moods of investors and could lead to a pullback from current levels which have already acted as a resistance in the past,” he said.