Sterling has outperformed again today, and, although off its highs is presently showing a 0.6% gain versus the dollar, a 0.3% advance on the euro and a 0.2% gain on the yen. Only the Australian dollar is stronger, out of the currencies we keep tabs on, today. The pound is also showing an average 1.5% gain versus the G3 currencies on the week. Fundamental and political positives have been underpinning the pound. The preliminary estimate of UK Q4 GDP beat expectations, in data released earlier today, rising by 0.5% q/q and 1.5% y/y, which followed labour market data earlier in the week showing an unexpected 102k surge in UK employment, which was well up on the median forecast for a 13k decline.
UK Brexit minister Davies has added further pressure on pound as well, with cable drifting 70 pips lower, down to 1.4130. He clarified the post-Brexit transition issue, confirming that this will be main item on the agenda in discussions with Brussels in the weeks ahead. He said he was “confident” that a deal will be struck on this by the March EU leaders’ summit. A transition period will likely be a two-year period after leaving the EU on 29th March 2019, during which time the UK would retain access to the single market and remain in the customs union, while continuing to observe its rules and jurisdiction of the European Court of Justice, and maintain financial contributions. Davies described this as being a bridge to a full departure from the single market and customs union, and a full return of sovereignty and UK law. He emphasized that the EU will not be legally able to negotiate new post-Brexit trading terms until the UK is actually out of the EU. Davies also argued that transition will allow time to build new infrastructure, particularly customs-related facilities, and give time to business to adjust. He stressed that a deal should be little more than a formality as the benefits of it are mutually beneficial for EU nations.
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