Sterling jumps on UK-EU financial services deal hopes

LONDON: Sterling rallied more than 1 percent on Thursday after a British official said London was close to sealing a deal that would give UK-based financial services firms basic access to European Union markets.

The British currency jumped more than half a percent against the euro as investors cheered raised expectations that UK financial institutions would not lose privileged access to the EU, a major concern for markets.

"This is a significant development for the pound as it alleviates some market concerns on how would London finance its big current deficit," said Ulrich Leuchtmann, a currency strategist at Commerzbank.

The financial services sector is a major contributor to Britain's economy.

The pound jumped 1.1 percent to $1.2908, sending the currency to a six-day high. Against the euro, it rose 0.6 percent to 88.155 pence per euro.

Sterling's chunky gains also underscore the underlying state of hedge fund positioning in currency markets, which is broadly short sterling.

At nearly 4 percent of GDP, UK has one of the highest current account deficits among its peers and market concerns that the lack of a Brexit deal would deter investors has weighed on the pound.

Thursday's gains follow a rise for sterling the previous day when Brexit minister Dominic Raab said he expected a deal on the terms of Britain's departure from the bloc to be concluded with Brussels by Nov. 21. London later said there was no set date for Brexit talks to finish.

"Ratification by the UK parliament (of any deal) could be problematic so would be wary of predictions of lots more upside for sterling until that has been resolved," said John Marley, a senior currency consultant at FX risk management specialist, Smart Currency Business.