British pound moves higher on possible Brexit talks breakthrough

British pound moves higher on possible Brexit talks breakthrough

The British pound was buoyed early Wednesday, on reports the UK has agreed to pay a higher amount to the EU than previously discussed. The unconfirmed news of the potential breakthrough means Brexit negotiations should move forward, soon.

By 1140 BST, the British pound was trading at $1.3405. While that was down from an earlier peak of around $1.3425, it’s still above the levels it was trading at during the UK market open Tuesday and in recent weeks, too.

Brexit deadlock breakthrough

Reports emerged late Tuesday that the UK had agreed to pay some €50 – €60 billion more than it previously said was possible.

The settlement amount the UK is willing to pay as part of the EU divorce process, has been a major sticking point. And, if these details are confirmed, it will likely mean negotiations can finally move forward to the crucial trade details.

The EU’s chief negotiator. Michael Barnier said earlier Wednesday, that talks were progressing.

“We are working really, really hard on these subjects,” Barnier said, adding: “I hope that I can report that … we have been able to negotiate a deal.”

He gave no further details on the financial settlement discussions.

Investors happy with progress

The British pound has benefitted from the news negotiations should soon move forward. That’s because it means the process is progressing and if further agreements can be achieved, then there will be some certainty about exactly what Brexit will mean for the UK and its economy.

Right now, even though sterling has gained ground against a number of currencies on this latest development, it still remains much weaker against the US dollar than it was before the result of the Brexit referendum was announced in 2016.

Analysts, meanwhile, say that the reason a small nugget of good news has boosted sterling, is because its undervalued right now.

“Sterling’s current valuation is so poor that any small piece of good news is enough to trigger a disproportionate response. Just imagine what would happen if there were any genuinely positive news,” said Kit Juckes, Research Analyst at Societe Generale.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

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