The Brexit deal was a Christmas gift, as the agreement was signed between the UK and the EU on 24 December, taking the GBP/EUR pair to December highs.
GBP/USD is poised for a bullish run, as it is well above its moving averages with a target at the previous high at 1.3650 levels. The free trade deal between the UK and the EU has raised hopes of a recovery in global economies.
France has lifted its ban on incoming freight from the UK, which was imposed when the new virus strain was observed in the United Kingdom.
GBP/EUR Hopeful after Historic Brexit Deal
Britain will leave the European Union on 31 December at 2300 GMT by the Draft EU-UK Trade and Cooperation Agreement”.
The UK voted to leave the European Union in 2016. However, it left the EU only on 31 January 2020, and it has taken one year, almost to the end of December 2020, to work out the deal. Trade between the United Kingdom and the EU can now continue without extra tariffs and taxes on goods, as the Brexit deal has been agreed upon.
The three issues that created a divergence between the two regions were fishing rights, fair competition, and level playing field, and these issues have been addressed.
The 1,246-page document gives details on the zero-tariff, zero-quota agreement on the movement of goods between the United Kingdom and the EU. Many issues have been addressed, such as nuclear energy, civil nuclear energy, exchange of classified information, etc.
Chancellor Rushi Sunak assures the City of London that there will be no damage by the deal. We will do a few things a bit differently, says Sunak. The Brexit agreement will ensure quota-free, tariff-free access to the European market from Britain says the Chancellor.
GBP/EUR Shoots Higher
GBP/EUR shot up from dismal levels at 1.0850 on Monday to touch 1.1171 on Thursday, after the announcement of the Brexit trade deal. The British Pound to Euro is at December high levels, though it was unable to breach the top at 1.1170, with investors moving away from the forex market for Christmas.
New Trading Brexit Agreement Between the UK and the EU
It is a new trading relationship between the UK and the EU. Key negotiators say that there have been compromises, but the EU has also made concessions on fishing areas. The United Kingdom has agreed to a five and a half year transition period to new rules in fishing.
Anneliese Dodds, Labor’s shadow chancellor, however, points out that the financial services are not protected, which would affect the UK jobs. There are “no clear elements in the deal”, she says.
Trade relations with the EU will be “wrapped in red tape” criticizes Liberal Democrat leader Sir Ed Dave. Labor calls for “more work” to protect jobs in the United Kingdom.
The National Federation of Fishermen’s Organization (NFFO) states that the Prime Minister fishing quotas are “bottled in”. NFFO CEO Barrie Deas says that PM Johnson has “sacrificed fishing”, one of the key sticking points to the deal.
GBP/USD at 2-1/2 Year High
The GBP/USD currency pair retreated from the highs of 1.3600 levels to close for the weekend at 1.3548. With traders leaving early for Christmas Eve celebrations in the EU, UK, and the US, trading in the currency market has been slow.
On Monday 21 December, the GBP/USD currency pair crashed to almost 1.3190 with Brexit hopes dashed. But the Sterling recovered to 1.3610 levels on Thursday, 24 December, when officials announced the agreement over the Brexit trade deal.
The Sterling could not rise above the 2-1/2 year high at 1.3625, which it touched last week, and closed lower for the weekend.
The UK economy is hurt by the prevalence of Covid-19 increasing in England. The new infectious virus strain is raging in various parts of the UK.
The Sterling shot up to 1.1170 levels on Thursday, after moving lower to 1.1116, fluctuating widely on Christmas Eve.
The Euro declined from 0.9219 on Monday to 0.9005 on Friday. The Brexit deal has negatively affected the Euro against the British Pound.
The single currency has moved higher to 1.2204 on Friday, 25 December, bouncing from the lows of 1.2129 on Monday, 21 December.
The British Pound against the Japanese yen has moved up from 137.00 levels to 140.50 on Friday, gaining strength from the Brexit agreement.
The British currency touched a three-and-a-half-month high at 141.06 yen, though it eased to 140.22 levels on Christmas eve as financial markets remained close for Christmas.
USD Moves within a Limited Range
The US dollar is trading in a tight range with the $2.3 trillion stimulus package for the coronavirus held up in Washington, caused by political wrangling between the Republicans and Democrats. The dollar index was at 90.25, well above its 89.64 lows.
After four years of negotiations, the trade agreement is signed, bringing in a new UK-European relationship. With no major economic data coming from the UK and Europe, the forex market is expected to be a quiet one with reduced trading volume and lower volatility.