British Pound Rises Sharply as U.K. Inches Closer to Smooth Brexit Deal
Sterling rose sharply on Thursday after U.K. Prime Minister Theresa May said her government was moving closer to securing a smooth exit from the European Union. However, the so-called soft Brexit deal is expected to face hurdles in Parliament as May’s Conservatives lack a majority in the lower house.
Brexit Draft Agreement
The European Council has “agreed in principle” on a new Brexit deal that would allow the United Kingdom to maintain close economic ties to the EU while also reclaiming control over its borders. The draft agreement stipulates an exit date of Mar. 29, 2019 but allows both sides to maintain close economic ties for several years after the official breakup.
Prime Minister May secured cabinet approval of the draft text earlier this month after staving off an internal revolt by hard Brexiters. Although May said the deal “is in the best interest of our entire United Kingdom,” she conceded that it will invite intense criticism from both sides of the Brexit debate. That’s because the text doesn’t satisfy the hard Brexiters nor the Remain camp, and requires a new round of negotiations in the future to sort out several outstanding issues related to U.K. sovereignty, trade and economic relations.
That said, the prime minister on Thursday said the draft text means Brexit “is within our grasp.”
According to The Wall Street Journal, the proposed plan is a “forward-looking, nonbinding sketch of the long-term relations between the EU and U.K. regarding security and trade.” The text spells out the conditions of the U.K.’s departure, including the amount of money London will play to settle its withdrawal, the status of EU citizens living in the United Kingdom and vice versa and conditions to ensure the continuation of a soft border with Ireland. Concessions for Ireland likely mean that the U.K. will remain part of the EU’s customs union.
The proposed text must still pass through U.K. Parliament before final approval is granted.
The British pound reached a high of 1.2921 U.S. on Thursday, its best level in a week. At last check, the GBP/USD exchange rate was valued at 1.2864, having gained 0.7% on the day. Traders can expect firm resistance near the intraday high, though a soft Brexit announcement should keep prices firmly above the 1.2820 support.
Losses against the pound weighed down the U.S. dollar index (DXY), which tracks the greenback’s performance against a basket of six competitor currencies. The dollar index slipped 0.2% to 96.53, extending its multi-week slide to 1%. DXY rose to yearly highs on Nov. 12 but has backtracked ever since.
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