The pound has surged to its highest level against the dollar since the UK’s vote to leave the EU following reports that Spain and the Netherlands are willing to back a soft Brexit deal.
Sterling hit a high of $1.3691, a gain of almost 1.5 cents – more than 1% – after Bloomberg reported that the two countries were keen to maintain the closest possible ties between the EU and Britain, after Brexit.
The pound was changing hands for $1.49 before the Brexit vote on 23 June 2016, but plunged when it became clear the British public had voted to leave the EU. It hit a low of about $1.20 in January 2017.
Bloomberg reported: “Spanish economy minister Luis de Guindos and his Dutch counterpart Wopke Hoekstra met earlier this week and discussed their common interests in Brexit, according to the person.
A soft Brexit, while not officially defined, would keep Britain in either the single market or the customs union or both. It could be achieved along the lines of the Norway model (see EEA/EFTA) or via an FTA, but would require concessions on free movement, ECJ jurisdiction and budget payments. Brexiters do not consider a soft Brexit as really leaving the EU. See our full Brexit phrasebook.
“Both have close trade and investment ties and are concerned about the impact of tariffs. They are also worried about losing UK contributions to the EU budget, the person said.”
A spokesman for Spain’s economy ministry said the two finance chiefs discussed the importance of the UK for both countries, and agreed to keep talking on their common interests while at the same time backing Michel Barnier, the EU’s chief Brexit negotiator. A spokesman for Hoekstra declined to comment.
However Neil Jones, head of European hedge-fund sales at the Japanese bank Mizuho, played down the significance of the discussions. “It’s not so significant as the rally would suggest. Just because two of the 27 members say this, it doesn’t mean a softer Brexit will happen. I doubt it’s as straightforward as that.”
Analysts said the pound was also boosted by a broader weakness in the dollar. “Sterling jumped 1% today to reach its best level since the Brexit vote after a bout of dollar weakness and some good news on Brexit delivered another boost to pound bulls,” said Neil Wilson, a senior market analyst at ETX Capital.
The pound was also up slightly against the euro at €1.1256, but with the single currency itself strong after news of a breakthrough in German coalition talks, the rise was limited to about 0.1%.
The sharp fall in sterling since the Brexit vote has pushed up the cost of goods and services imported from abroad. As a result inflation has risen from 0.5% in June 2016 – the month of the referendum – to 3.1% in November, putting increased strain on household finances as UK wage growth fails to keep pace with price rises.
However, British exports have become more competitive. Data from the Office for National Statistics (ONS) earlier this week showed UK factories boosted their output for an eighth consecutive month in November, an achievement last seen in May 1994.
