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Sterling rises further after UK-EU announce draft transition pact

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Sterling added to its gains just after midday on Monday after UK and EU leaders struck a preliminary agreement for a 21-month Brexit transition.

The UK currency was up 0.98 per cent on the US dollar at $1.4078. It climbed 0.72 per cent on the common currency, to € 1.1420.

Britain and the EU on Monday said they reached a conditional agreement on the UK’s transition from the bloc just a year from now.

Earlier that day sterling had pushed to its best level against the euro since February 28th, rising 0.2 per cent to 87.95 pence per euro, as optimism for a Brexit deal grew.

Question marks over a transition deal have hung over sterling, not least because securing one would allow both sides to focus on the tougher task of hammering out what sort of trading relationship they will have after Britain leaves. The pound last week flirted with the $1.40 mark but failed to break through it and head towards the $1.43 levels it hit in January when a dollar sell-off gathered steam.

Later this week the Bank of England monetary policy meeting is expected to keep rates on hold but prepare the market for a possible rate hike in May, an increase it has signalled is contingent on a transition deal being agreed. Analysts do not expect the BoE to serve up any surprises, but will be looking at both consumer price inflation data, due on Tuesday, and wages data due on Wednesday for any sign of inflationary pressures building in the economy. “We suspect a frenetic week could be in store for British pound markets as Brexit and Bank of England policy risks clash head-on,” ING’s Viraj Patel said.

Copyright The Financial Times Limited 2018/Reuters

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