Sterling has moved higher today following reports of positive developments in Brexit trade talks.
Earlier, Michel Barnier stated that “good progress” had been made in the talks and that only the “last stumbling blocks” remained in the way of an agreement. It seems substantial progress has been made on the key level-playing field issue after Boris Johnson allowed an alignment mechanism with EU rules. The politically sensitive fisheries issue now appears to be the main focus of these last ditch talks and an agreement looks more likely to be reached over the next few days (potentially by Sunday). This has supported the Pound today and also increased market risk appetite.
In other news, the USD has continued to weaken after the Federal Reserve said it would continue to keep channelling cash into financial markets until the US recovery looks fully in hand. Furthermore, the chances of agreement on a $900 billion US stimulus package and a post-Brexit trade deal have both risen, which has further boosted market risk appetite and therefore reduced the appeal of safe-haven currencies, such as the US dollar.
As a result, the GBP/USD rate has hit a fresh 2.5 year high today having gained nearly another 1% today. The GBP/EUR has also clawed back some ground and touched the top of the range we’ve seen in December. The EUR/USD has continued its push higher and now trades over 1.22. Attention will continue to focus on Brexit developments and whether there are any last minute political dramas to try and appease their domestic audiences.