Sterling jumped, and currency-dependent British stocks fell yesterday, after the EU’s chief negotiator Michel Barnier signalled an accommodative stance towards the UK on ongoing Brexit negotiations.
“The Ftse-100 has tumbled into the close today, with news of a potential breakthrough in Brexit negotiations sending the pound sharply higher,” said Joshua Mahony, market analyst at online broker IG.
“Markets have got pretty used to consistently negative news from Brexit discussions, yet Barnier’s announcement that the UK will be offered a deal unlike anything previously offered has helped raise the hopes for markets,” he said.
The Ftse-100 includes many UK-based international companies that generate profits from outside the UK. Their share prices often rise when sterling falls, as a weaker UK currency boosts translated profits earned overseas. Conversely, their shares can drop when sterling rises, as happened yesterday.
Barnier said the EU was prepared to offer a partnership with the UK such as has never been offered with any other third country. The pound rallied to the day’s highs of $1.2985 per dollar, up 0.8%, and against the euro, it extended gains and climbed 0.7% to 90.08p. Sterling has dropped from 88p in recent weeks, and from around 76p at the time of the UK’s Brexit referendum over two years ago. British 10-year bond yields rose to the highest since May 22.
“The EU has actually been relatively accommodating for quite a while now and these latest comments makes it very hard for the UK government to keep blaming the EU for the risk of a no-deal,” said John Marley at SmartCurrencyBusiness.
With senior European and British government officials refusing to budge from their negotiating positions in recent days, the prospect of a no-deal Brexit has piled pressure on the British currency in recent days.
Mahony at IG said: “Almost all the preceding ‘breakthroughs’ have been swiftly proven to be a false dawn, and thus while we are seeing the pound spike higher, there is certain to be some hesitancy until we see a more consistently positive tone from the EU.”
Meanwhile, US stock- markets continued to look towards the three-country-Nafta trade negotiations as a driver of market sentiment, he said, despite a US deal with Canada remaining elusive.
“With Trump hoping to get Canada on-board after striking a deal with Mexico earlier in the week. It was always likely to be a stretch to get Canada across the line by the Friday deadline,” said Mahony.
Additional reporting Reuters