Sterling nears 2020 peak as investors anticipate a Brexit breakthrough

LONDON — The British pound jumped close to levels not seen for 31 months Thursday as investors bet the U.K. and the European Union would strike a long-awaited Brexit trade deal.

Sterling climbed 0.8% to around $1.3593, after earlier reaching a session high of $1.3616. Earlier this month, the currency breached a 2020 high of $1.3624, a level it hasn’t hit since May 2018.

Brexit negotiators on both sides are said to be on the cusp of striking a narrow free trade agreement on Thursday. It comes after months of tense political wrangling over a number of key sticking points.

“This is going to be a skinny deal, “Jane Foley, head of FX strategy at Rabobank, told CNBC Thursday. “The general feeling is that services are going to be left out in the cold and talks will continue next year.”

Irish Foreign Minister Simon Coveney said a post-Brexit trade deal was expected Thursday, after a “last-minute hitch” delayed an announcement.

Timings remain unclear, with Reuters at midday London time citing both an EU and U.K. official saying the deal could still be “hours away.” Press conferences slated for early Thursday were delayed as both sides finalized the “small text” of an agreement on fishing rights, Coveney said.

Confirmation of a deal would wrap up an extensive period of tense negotiations over the future trading relationship between Britain and the EU. Both sides have been at odds over a number of key issues, not least fisheries.

The EU wants to maintain access to U.K. waters for its fishing fleets, while the U.K. wants to largely curb these fishing rights. A no-deal scenario could see EU access to U.K. waters end abruptly, and vice versa, and the U.K. had even threatened to deploy the military to protect British waters.

Looking ahead to next year, Berenberg’s Senior Economist Kallum Pickering said a deal would offer support for the pound.

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