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GBP, AUD, NZD Jump as UK-EU Reach Deal on Financial Services

 

GBP Pound Sterling Brexit Deal on Financial Services

The mood was buoyant in foreign exchange markets on Thursday following news that the UK has achieved a deal with the EU on financial services that would give London’s banks continued access to European markets post-Brexit.

Together with the pound, currencies that benefit from the switch to “risk on,” like the Australian dollar and New Zealand dollar, did best, especially against the safe haven currencies of choice—the US dollar and Japanese yen.

GBP to USD - 3 month chart to 01 Nov
GBP/USD - 3 month chart to 01 Nov

For investors, Brexit has long represented a cloud of uncertainty over markets in Europe and beyond, and today’s agreement is a sign, most now believe, that a broader Brexit deal will soon be finalized. The UK’s Brexit Secretary Dominic Raab said as much in a letter to members of the Commons Brexit committee, to whom he wrote that the government expects to strike a full deal within three weeks.

Sterling, now back buying $1.29, perhaps won’t make the most of today’s developments until after Thursday’s Inflation Report, delivered by the Bank of England at midday in London. In addition to its quarterly report, the BoE will almost certainly announce no change to its benchmark interest rate, currently at 0.75 percent.

With risk appetite increasing, the Australian dollar leapt away from recent price action to trade at $0.716 for the first time in a month. Likewise, the New Zealand dollar rallied strongly to $0.6615.

AUD to USD - 3 month chart to 01 Nov
AUD/USD - 3 month chart to 01 Nov

The Canadian dollar might ordinarily have had a much stronger performance, but it remains bogged down by a rapidly declining oil price. Each barrel of “black gold” is now worth $12 less—16 percent less—than it was four weeks ago. The loonie moved away from seven-week lows, strengthening moderately to $0.763.

With Thursday’s climb to $1.139, the euro did approximately half as well as the pound, relatively speaking. Of the two Brexit-associated currencies, it has been the pound, not the euro, that has been hardest hit whenever the possibility of “no deal” has been raised, and this explains the day’s half-penny loss in euro buying power relative to sterling. When last seen, EUR/GBP was quoted at a nine-day low of £0.881 (GBP/EUR €1.135).

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