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Sterling surges to 11-week peak on new Brexit plan

Sterling reached an almost three-month high on Friday, after Northern Ireland’s Democratic union party had reportedly decided to back prime minister Theresa May’s Brexit deal.

Brexit Pound sterling Monetary policy Central bank European Central Bank Mario Draghi

Sterling reached an 11-week high on Friday, after UK news reports reveal Northern Ireland’s Democratic Union Party (DUP) would back prime minister Prime Minister Theresa May’s Brexit deal.

UK newspaper, The Sun, reported that the DUP had decided to offer conditional backing for May’s Brexit deal next week.

The pound climbed 1.8% this week, on hopes the UK might avoid a no-deal Brexit on 29 March.

Sterling moved above $1.30 to the dollar.

The pound pushed 0.4% higher to $1.3114, on the back of the news, marking its highest since November.

Looking to EUR/GBP, sterling gained 0.25% against the euro to $0.8631.

Analysts expect sterling to rally to $1.32 versus the dollar and expect monetary policy to remain accommodative in the euro area this year.

Brexit uncertainty pressuring markets

The sterling has been under pressure in recent weeks over Brexit uncertainty, pushing investors towards safe-havens.

Global growth worries have also kept broader risk appetites in check in currency markets over the past month.

Concerns also increased when China reported its weakest growth in three decades, with the International Monetary Fund downgrading its forecasts for the global economy over the next two years.

European Central Bank dovishness

In more recent news, Thursday night’s central bank’s monetary policy meeting had markets worried.

IG market analyst, Kyle Rodda, said markets were worried about European Central Bank (ECB) President Mario Draghi, following the central bank’s monetary policy meeting.

‘Markets were pricing in a very dovish Draghi, but the price action suggests that he may have “out-doved’ market participants expectations.

Draghi emphasized carefully that risks to the European economy have 'moved to the downside', Mr. Rodda said.

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