Surprise UK-EU Brexit deal spurs pound

Britain and the European Union appeared to reach broad agreement on a post-Brexit transition period and the Irish border on Monday.

Here are the latest business reactions and analysis about the surprise move:

US Treasury yields rose on Monday in line with higher European bond yields after the European Union and Britain reached a deal on a Brexit transition and after a report that the European Central Bank is shifting its debate on the expected path of interest rates.

“We had the Brexit item to start and then we added an extra layer,” said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee, noting that the ECB report indicates that “even the doves are feeling the pressure to go ahead and start thinking about when rates might be raised,” Reuters reported.

Benchmark 10-year notes fell 7/32 in price to yield 2.872 per cent, from 2.848 per cent on Friday.

UK business leaders broadly welcomed the agreement with some caveats. Allie Renison, Head of Europe & Trade Policy at Britain's Institute of Directors said: "We hope that the EU summit this week will not be seen as an opportunity for political leaders to muddy the waters of this deal as agreement on transition is vital for businesses across Europe.

"We are, however, concerned that not enough attention is being given now to the finer details and practical implications of transition. Many businesses will only be able to sufficiently plan and prepare for Brexit once the precise details of the future relationship are known, and any changes to domestic infrastructure like customs have been implemented."

Ian Wright, Director General of the UK's Food and Drink Federation (FDF) said: "While it is positive to see how much has been agreed so far, particularly in relation to citizens' rights, and a time-limited transition period, FDF has long supported a transition period of at least two years.

"Food and drink manufacturers are now looking for serious reassurance from government that will not press ahead at any economic cost and that they will be flexible if systems - particularly customs – are not ready in 21 months’ time.

EU negotiator Michel Barnier said Britain "will no longer participate in the European Union decision-making process".

"Nevertheless, it will preserve the benefits, the advantages of the single market and the customs union ... and will therefore be required to respect all the European rules just like all member states do," AFP reported.

Adam Marshall, Director General of the British Chambers of Commerce: "This is a milestone that many businesses across the UK have been waiting for. The agreement of a status quo transition period is great news for trading firms on both sides of the Channel, as it means that they will face little or no change in day-to-day business in the short term," according to Reuters.

"While some companies would have liked to see copper-bottomed legal guarantees around the transition, the political agreement reached in Brussels is sufficient for most businesses to plan ahead with a greater degree of confidence. Many companies will now have the clarity they require to proceed with investment and hiring strategies that would otherwise have remained in question.

"In the interests of business across Europe, both sides must now do everything in their power to ensure that the transition does not become a political football later in the negotiation process."

UK's Brexit secretary David Davis wants talks on a trade deal to begin as soon as possible, pointing out that it can’t be signed until after the UK actually leaves the bloc. “The most important thing is we need to get on with this now,” he said, according to Bloomberg.

Britain and the European Union have agreed a "backstop" solution for the problem of the Irish border after Brexit which British Prime Minister Theresa May rejected as unacceptable just weeks ago.

"We agreed today that the backstop solution must form part of the legal text of the withdrawal agreement," Mr Barnier told reporters after the draft agreement was published, AFP reported.

Mr Davis said the two have agreed to set up "a joint committee" to resolve any disputes during the transition period, which is expected to last for just under two years.

He said the transition agreement means businesses now have certainty about the period immediately after Brexit; they can go ahead with investment decisions and be sure there’s no disruption. But Mr Barnier repeated his warning that the transition only becomes a certainty when the final withdrawal agreement is ratified, Bloomberg said.

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Sterling surged on Monday as Britain and the European Union appeared to reach broad agreement on a post-Brexit transition period and the Irish border.

Sterling pushed to its best level against the euro since February 8, rising as much as 0.6 per cent to 87.55 pence per euro , as talk of a agreement filtered out of a meeting between Britain's Brexit minister, David Davis, and EU chief negotiator Michel Barnier on Monday, according to Reuters.

Against the dollar, the British currency rose 0.6 per cent to $1.4048, the first time sterling has breached the $1.40 mark since February 26.

"People are expecting something positive and they have been positioning ahead of it," said Viraj Patel, an analyst at ING. He said the pound could rise as high as $1.43 this week if economic data also support sterling and the Bank of England is more hawkish than expected.

Sterling faces a pivotal week, with the BoE announcing an interest rate decision on Thursday after crucial inflation and wages data.

Market analysts had mostly expected Britain to secure a transition agreement at Thursday's EU summit. That would mean little change in trading between the UK and the EU bloc for around two years after Britain leaves next year.

Questions about the transition have hung over sterling, not least because securing the terms would mean a shift in focus to what trading relationship the two sides would have after Britain leaves.

"There is a lot of optimism about the transition deal. The market thinks it's a done deal and the general expectation is that a deal is going to be contingent on the Irish border issue," said Alvin Tan, an FX strategist at Societe Generale.

The UK and EU have agreed on a "large part" of the agreement that will lead to the "orderly withdrawal" of the UK, the BBC reported.

Mr Barnier said the two sides had agreed on the transition period, calling the announcement a "decisive step".

He spoke after meeting with Mr Davis.

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The transitional period will begin from Brexit day - March, 29, 2019 - and is designed to smooth the path to the future permanent relationship.

Mr Barnier said there was agreement on the rights of EU citizens in the UK and UK citizens in the EU after Brexit.

Both the UK and the EU hope the terms of an agreement on the transitional period can be signed off at the EU summit this week.

Despite optimism over an agreement, a deadlock over Irish border arrangements had threatened to derail any agreement, Reuters said.

A senior EU diplomat said on Monday negotiators had agreed draft Brexit treaty texts, although some details remain outstanding.

Among other issues the two sides have had to negotiate for the transition period have been what rights expat citizens have, what role the European Court of Justice has in the UK, fishing quotas, whether the UK can negotiate future trade deals with non-EU countries as well as the continuing issues of the Northern Ireland and Gibraltar post-Brexit.

BBC Europe Editor Katya Adler said the issues of the Northern Ireland border and Gibraltar have the potential "to bring the whole Brexit deal down".

Adrian O'Neill, Ireland's ambassador to the UK, says it is crucial both sides make progress on the border issue, while Gibraltar's chief minister Fabian Picardo has expressed confidence that it will be included in the planned Brexit transition deal.

Later this week the Bank of England monetary policy meeting is expected to keep rates on hold but prepare the market for a possible increase in May, an increase it has signalled is contingent on a transition agreement, Reuters said.

Analysts do not expect the BoE to serve up any surprises, but will be looking at both consumer inflation data, due on Tuesday, and wages data due on Wednesday for any sign of inflationary pressures building in the economy.