LONDON (Reuters) - Sterling hit a 7-month high versus the euro and rocketed beyond $1.30 on Tuesday after the United Kingdom and European Union agreed on the text for a Brexit divorce deal.
Prime Minister Theresa May will present the draft withdrawal agreement to her senior ministers on Wednesday for discussion and then decide on the next steps, her office said in a statement that confirmed several British media reports.
The news was cheered by investors hoping May can convince her ministers to back the draft agreement if there is to be enough time for a proposed Brexit summit of EU leaders in late November to approve it.
Brussels diplomatic sources had said they feared any delay in agreeing the text would increase the chances of rejection by May’s ministers or the British parliament.
“While there are still numerous hurdles ahead, sign-off on Wednesday could be a hugely important step towards getting a deal over the line before Christmas and avoiding a disastrous no deal scenario,” said Craig Erlam, market analyst at OANDA.
After the pound rose throughout Tuesday on growing hopes of a breakthrough, it surged in late European trading on British media reports that the withdrawal treaty text was provisionally agreed.
It shot up 0.9 percent to 86.56 pence EURGBP=D3 versus the euro, its strongest level since mid-April, with more than half the gain following the reports.
Sterling also jumped as high as $1.3047 GBP=D3, up more than 1.4 percent on the day. That put the pound on course for its second-biggest daily rise since January.
Analysts cautioned that May still had to win over many members of her party as well as the Northern Irish Democratic Unionist Party, which props up her minority government.
“The devil will be in the detail of the Irish border issue. Everything hangs on that and ultimately whether Theresa May can get this past Parliament,” said Aberdeen Standard Investments Political Economist Stephanie Kelly.
“She still has to convince them and the rest of Parliament and that’s not a foregone conclusion by any means.”
Volatility in the pound has surged as investors position themselves in a crunch week for the Brexit negotiations.
Investors’ expectations for price swings in the pound versus the dollar over the next one GBP1MO= and three months <GBP3MO= have soared to their highest since early 2017.
The British currency had tumbled on Monday on fears that talks were deadlocked less than five months before the official departure date of March 29, 2019.
Separately on Tuesday, official data showed British workers’ underlying pay rose at the fastest pace in nearly a decade in the three months to the end of September. The jobless rate unexpectedly picked up.
Editing by David Stamp/Mark Potter/Ken Ferris