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The pound jumped sharply, rising above $1.35, on Wednesday afternoon as a post-Brexit trade deal was reportedly close to being struck and France lifted its U.K. blockade.
A deal is ‘in sight’ and could be struck today or on Christmas Eve, The Sun newspaper reported. The European Union has started preparing for the provisional application of a trade deal with member states being informed of a potential meeting on Thursday, according to Reuters.
Renewed optimism over a Brexit trade deal boosted the pound GBPUSD, +0.91%, which rose 1% against the dollar to $1.3500. Sterling’s strength ensured the FTSE 100 UKX, +0.66% came under pressure, before rising 0.7%, still lagging behind its European peers. The more domestically-focused FTSE 250 MCX, +1.74% rose 1%.
EU chief negotiator Michel Barnier said both sides were making a “final push” for an agreement, with some reports suggesting the aim was for that to come on Wednesday. British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen are in close contact in a bid to strike a deal before talks pause for Christmas but key sticking points remain, the BBC reported.
The U.K. left the EU on Jan. 31 but the two sides must reach a deal over their future trading relationship before the transition period ends on Dec. 31. Both sides originally said an agreement must be reached by mid November in time to be ratified by the deadline but discussions have been extended and are now set to go down to the wire.
Along with the stronger pound, the spread of a new COVID-19 variant in the U.K., said to be more infectious, and fears over the economic impact of tougher restrictions also kept the index under pressure. CMC Markets analyst David Madden said: “Fears for the new strain of COVID-19 have cooled for now, but I doubt we have heard the last of the new variant of the virus seeing as it has been identified in several other countries.”
However, there was some positivity to be found as France reopened its border with the U.K. after thousands of trucks were left stuck at Dover following a ban aimed at preventing the new strain from entering Europe. Drivers will now be allowed to enter France by tunnel or ferry if they provide a negative test for the virus. The British Army has been called in to help carry out the tests on stranded drivers.
The move opens up one of Europe’s most crucial trade routes, easing fears over food and medicine shortages in the run-up to Christmas, but officials warned it could take a few days to clear the massive backlog with as many as 10,000 trucks bound for France. In the meantime German airline Lufthansa LHA, +4.34% is airlifting fresh fruit and vegetables to the U.K. for grocers, including Tesco TSCO, +2.68% and Sainsbury’s SBRY, +2.85%.
Vaccines were once again in the spotlight with virus cases surging across the U.K. and parts of Europe. The COVID-19 vaccine being developed by Oxford University and AstraZeneca could be approved by U.K. regulators “just after Christmas”, John Bell Regius Professor of Medicine at Oxford told the BBC on Wednesday. Despite the development, the British drugmaker’s stock AZN, -1.42% dipped 1.4%.
