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SINGAPORE (Reuters) – The British pound surged on Thursday, announcing that Prime Minister Theresa May had reached an agreement with Brussels that would give British financial services companies continued access to European markets after Brexit.
FILE PHOTO: Sterling banknotes are viewed at the headquarters of Money Service Austria in Vienna, Austria on November 16, 2017. REUTERS / Leonhard Foeger / File Photo
The pound sterling rallied 0.6% against the dollar during Asian trading hours following the Times report.
British and European negotiators reached an agreement in principle on all aspects of a future services partnership, as well as on data exchange, the British newspaper reported, citing government sources. bit.ly/2CPDxAV
"It is always difficult to make a directional call to the pound because both optimistic and pessimistic titles continue to circulate. But I expect that a last minute deal will be reached before the EU summit in December, "said Sim Moh Siong, currency strategist at Bank of Singapore.
The pound was traded for the last time at 1.2849 USD, up 0.62% on the day. It has lost 3% against the dollar over the past three weeks as markets worry whether Britain will get an orderly exit from the European Union.
Sterling also posted gains of more than 0.5% each against the yen and the Swiss franc. The euro lost 0.4% against the pound sterling at 0.8828 on Thursday.
Traders were also turning to the Bank of England's (BoE) monetary policy decision later in the day.
Economists polled by Reuters are expecting the nine members of the BoE Monetary Policy Committee to vote unanimously to keep rates unchanged this month and see no new rate hikes on average before the month of May.
"The UK is not even closer to an agreement. They are beyond the critical period of negotiations, which means that BoE governor Mark Carney will be even more worried about the risks of degradation, "said Kathy Lien of BK Asset Management.
"As a result, traders can not rely on the central bank to save the pound because they have made it clear that the outlook for the UK economy depended on Brexit negotiations."
The pound sterling should rise 5.5% against the dollar if Britain and the European Union agree on a divorce deal, according to a poll by Reuters, but will decline by more than 6% if no agreement is concluded.
The euro reached 1.131 billion dollars, up 0.27%, after losing ground in the last three consecutive trading days, under pressure from weak euro area data, Italian budget concerns and Brexit difficulties.
The dollar index, an indicator of its value against six major competitors, fell 0.3% to 96.91, returning to a record high of 97.2 in 16 months in the previous session. The decline is due to the rise in the pound sterling and the euro, which together account for about 70% of the index.
The greenback had risen overnight after ADP's national employment report showed that private sector payrolls in the US had risen as much as eight months in October, confirming that the economy continued to grow a relatively steady pace.
This reinforced expectations of a continued rise in Federal Reserve rates, with a rise of 25 basis points in December and potentially two more in 2019.
The yen was up against the dollar at 112.85. The Japanese currency weakened to its lowest level in three weeks at 113.38 on Wednesday after the BOJ announced its intention to maintain its loose monetary policy for some time.
Although monetary divergences between the Fed and the BOJ give the dollar the advantage over the yen in the medium term, some analysts believe that the yen could strengthen in the coming months.
"This year, the yen's function as a safe haven has been diluted by the higher yields offered by the dollar," said Jane Foley, currency strategist at Rabobank.
"However, the risk of a worsening of the trade war between the US and China, a slowdown in global growth, a potential for slowing US growth and a cap on Fed suggests the yen could regain ground against the greenback next year. "
Rabobank is looking to move to 110 in the middle of next year.
The Australian dollar rose 0.58% to 0.7115 USD thanks to better than expected trade data.
Reportage of Vatsal Srivastava; Edited by Shri Navaratnam
