IFX Market Report: Thursday 24th December 2020

After over 4 years of tough negotiation, reports last night suggest the UK and the EU have finally agreed on a post-Brexit trade deal. Sterling is up as a result, trading at 1.36 against the U.S. Dollar and over 1.11 against the Euro. It is believed officials in Brussels are finalizing the details of the deal that will come into force when the UK leaves the EU trading rules next week. A deal thankfully ends the prospect of the two sides imposing widespread import tariffs on each other’s goods from 1st January. After he has spoken to European Commission President Ursula von der Leyen, Boris Johnson is expected to hold a press conference at Downing Street to announce the historic trade deal.

Yesterday morning, before news of a deal was leaked, GBPUSD opened at 1.3409 and by the close was up by over a cent at 1.3510. Since last night, cable has been able to rise by over 0.5%, briefly surpassing the 1.36 handle after this morning’s open.

Also capitalizing on the last nights Brexit breakthrough was GBPEUR. Opening yesterday just above the 1.10 mark at 1.1008, the pair was able to catch some upside and finish the day at 1.1079. Since last nights close GBPEUR increased by over 0.6% - testing the 1.1150 mark just before 09:00 this morning.

EURUSD spent Wednesday fluttering between 1.2190 and 1.22. Opening at 1.2181 yesterday, the pair only managed to close 12 pips above, finishing the day at 1.2193.

Despite the UK and EU negotiation teams coming to an agreement on post-Brexit terms, “the final document would still need to be approved by Johnson and EU governments, as well as parliaments on both sides”. According to a Bloomberg report last night, an EU source had “said the U.K. had made concessions on fisheries in recent hours that had unlocked the deal”. “Both sides have made an agreement on fishing a precondition for any wider deal over their future relationship, even if the €650 million of fish European boats catch in U.K. waters each year is a fraction of the €512 billion of goods traded annually between Britain and the EU. The EU also wants to be able to impose tariffs on the U.K. if, after the fisheries transition period, the government restricts access to its waters. In its latest compromise offer, the U.K. said it would accept tariffs on fisheries but not in other areas, such as on energy, as demanded by the bloc.”

It is understood that “Johnson has accepted that the bloc’s share of the catch in U.K. waters should fall by 25% over a period of five-and-a-half years. Britain had initially sought an 80% reduction over just three years, but in recent days had offered a cut of 30%... This would be phased in over five and a half years. The U.K. previously offered three years while the EU were pushing for 10.”

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