Sterling shines on report Brexit deal on financial services sealed

The British pound jumped on Thursday on a report that Prime Minister Theresa May has struck a deal with Brussels that would give UK financial services companies continued access to European markets after Brexit.

Sterling firmed as much as 0.6 percent against the dollar in Asian trading hours following the report by the Times.

British and European negotiators have reached tentative agreement on all aspects of a future partnership on services, as well as the exchange of data, the British newspaper reported, citing government sources.

“It is still tough to make a directional call on the pound as both optimistic and pessimistic headlines keep flowing around. But I do expect a last minute deal to be clinched before the EU summit in December,” said Sim Moh Siong, currency strategist at Bank of Singapore.

The pound was last traded at $1.2849, up 0.62 percent on the day. It has lost 3 percent versus the dollar in three weeks as markets worried over whether Britain would secure an orderly exit from the European Union.

The sterling also clocked gains of more than 0.5 percent each versus the yen and the Swiss franc. The euro lost 0.4 percent versus the pound to trade at 0.8828 on Thursday.

Traders were also looking to the Bank of England’s (BoE) monetary policy decision later in the day. Economists polled by Reuters expect the nine members of the BoE’s Monetary Policy Committee to vote unanimously to keep rates on hold this month and do not see a further rate rise until May.

“The UK is still no closer to an agreement. They are beyond the critical period of negotiations which means BoE governor Mark Carney will be even more worried about the downside risks,” said Kathy Lien of BK Asset Management.

“As a result, traders cannot count on the central bank to rescue the pound because they’ve made it clear that the outlook for the UK economy hinges on Brexit negotiations.”

Sterling will rise around 5.5 percent against the dollar if Britain and the European Union agree a divorce deal, a Reuters poll found.