British pound hits 2-year high after historic post-Brexit trade deal with EU

The British pound has risen to a near two-year high after a long-awaited post-Brexit trade deal was finally struck between the United Kingdom and the European Union.

Sterling rose more than 0.8 percent, to around $1.3560, after the agreement was announced. It also climbed against the euro to just above €1.11. Earlier this month, the currency breached a 2020 high of $1.3624, a level it hadn’t reached since May 2018.

The FTSE 100 also finished the day up, as trading stopped early ahead of the Christmas break. Brexit negotiators clinched the accord on Thursday, ending 11 months of talks that began on January 31, when Britain officially left the bloc and entered a transition period.

The deal will offer support for the British currency, according to Berenberg’s Senior Economist Kallum Pickering.

“By removing a major downside risk to the UK economy both in the near-term and long-term, a deal would unlock significant investment in UK and support the recovery once the ongoing coronavirus shock starts to fade, as well as provide a positive backdrop for UK equities and sterling heading into 2021,” he said, in a note seen by CNBC.

The sides have been at odds over a number of key issues, with the EU seeking to maintain access to UK waters for its fishing fleets and the UK wanting largely to curb those fishing rights.

The Brexit deal will preserve the UK’s zero-tariff and zero-quota access to the bloc’s single market and avoid an economically damaging “no-deal” exit. However, the agreement does not cover the nation’s much larger and influential financial sector. Brussels has not decided yet on whether to grant the UK access to the bloc’s financial markets.

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