London Markets

Dec. 17, 2020, 10:10 a.m. EST

Pound rallies against U.S. dollar as London markets weigh up prospects of EU trade deal

By Jack Denton

The pound rallied against the dollar on Thursday, in line with the euro, as markets were buoyed by optimism over a trade deal between the U.K. and the European Union before the end of the year and the prospect of fiscal stimulus in the U.S.

The FTSE 100 (FTSE:UK:UKX) , the index of London’s top 100 stocks by market capitalization, was near flat on Thursday after starting the day rallying higher alongside markets in France and Germany. The index was filled with more gainers than losers, with more than 70 of its constituents rising and less than 30 falling.

The negotiations for a trade deal between the U.K. and the European Union have entered the final stretch, after last Sunday’s deadline was pushed, following optimism that a deal was in sight. The U.K. will complete its exit from the EU, with or without a trade deal, on Jan. 1, and key issues remain unresolved.

Essential reading: There is a ‘path to an agreement’ on trade talks, EU says, as House of Commons is on standby to ratify deal

Plus: Pound surges as U.K. and EU set to go ‘the extra mile’ on Brexit deal

“As far as a EU/U.K. trade deal is concerned, it would appear that fishing rights are the last significant obstacle for an agreement to be put to the U.K. parliament sometime in the next week or so, with reports of talks entering a ‘tunnel’ helping the upbeat mood,” said Michael Hewson, chief market analyst at CMC Markets U.K.

Optimism in Europe has the pound (XTUP:GBPUSD) trading dominantly against a weakened dollar, with sterling rising 0.7% to $1.3600, building on two-and-a-half-year highs.

The dollar has sunk relative to other currencies, as the market continues to hope for a $900 billion coronavirus-stimulus bill from Congress, and the U.S. Federal Reserve upwards-revised projections for an economic recovery on Wednesday evening.

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In U.K. economic news, the Bank of England announced on Thursday that it would keep interest rates unchanged at 0.1% and keep the ceiling of its government bond-buying program at £875 billion ($1.1 trillion), as the central bank noted the U.K. economy was on track with expectations.

WPP (LON:UK:WPP) led the FTSE 100 into the green, as shares in the world’s largest advertising group rose 4.5%. The company said it is targeting double-digit earnings per share growth over the next three years, and a new policy for dividends to be set at around 40% of EPS.

Software group Aveva (LON:UK:AVV) was close behind, rising 3.8%, a day after the company said its takeover of data-management software firm OSIsoft had cleared almost all regulatory hurdles.

Shares in miner Rio Tinto (LON:UK:RIO) ticked up 1.3% after the company announced finance head Jakob Stausholm would be its next chief executive. The miner has been under intense scrutiny since it blew up a 46,000-year-old sacred Aboriginal site in Australia earlier this year — a move that led to the departure of its chief executive and other top executives in September.

High-tech grocer and robotics-logistics company Ocado (LON:UK:OCDO) was among the FTSE 100’s biggest fallers, with shares sinking more 1.7%. Food-delivery company Just Eat (LON:UK:JET) , which, like Ocado, is exposed to the sensitivities of the “stay-at-home” economy, dipped 0.6%.

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