The pound hovered below a two-and-a-half-year high on Friday after the UK and the EU struck a narrow Brexit trade deal, while overall sentiment in currency markets was tempered by a stalled US COVID-19 economic relief package.
The pound last stood at US$1.3549, having failed to rise above its two-and-a-half-year high of US$1.3625 hit last week, as the UK clinched a trade deal with the EU, just seven days before it exits the world’s biggest trading bloc.
Against the euro, the pound fetched £0.898, after scaling a three-week high of £0.895 on Thursday.
The British currency also hit a three-and-a-half-month high of ¥141.06 before easing to ¥140.22, although trade was slow as many financial markets were shut for Christmas.
While the Brexit deal is to preserve the UK’s zero-tariff and zero-quota access to the bloc’s single market and avoid a damaging “no-deal” exit, it does not cover the nation’s much larger and influential finance sector.
Brussels has made no decision yet on whether to grant the UK access to the bloc’s financial market.
“It is important to recognize this is just the beginning of a new trading relationship that can be built on,” wrote Gavin Friend, senior market strategist at National Australia Bank Ltd in London.
“We also have to stand by for both sides to spin the deal in their respective ways designed for domestic consumption. Invariably the national press will respectively talk of ‘wins’ versus the other side,” he said.
While the deal was a relief to every market player, the bare-bones nature of the pact leaves the UK far more detached from the EU, analysts said, suggesting the discount that has dogged UK assets since 2016 would not vanish soon.
“Now the deal is done, over time, we are going to start to see economic impact of leaving the EU, and I think that’s clearly negative for the UK economy,” Sumitomo Mitsui Banking Corp chief strategist Daisuke Uno said.
“I would think the pound will slip after all things positive about a deal have already been priced in,” he added.
Also hindering the British economy in the near-term, the prevalence of COVID-19 cases in England jumped, with one in every 85 people infected in the past week as a new infectious strain of the novel coronavirus rages in the southeast of the country.
In Taipei, the New Taiwan dollar edged down NT$0.008 against the US dollar to NT$28.541, down 0.2 percent for the week.
The US dollar was hemmed in tight range as a standoff on a US$2.3 trillion COVID-19 stimulus in Washington continued and raised the prospect of a partial government shutdown.
The US dollar traded at ¥103.55, down 0.2 percent on the day while the euro traded almost flat at US$1.2188.
The US dollar index stood at 90.285, off its two-and-a-half-year low of 89.723 touched last week. The index is down 0.3 percent for the week.
The offshore Chinese yuan was flat at 6.5185 per US dollar.
Additional reporting by CNA, with staff writer
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