Brexit Divorce Deal Agreed

The EU and the UK have agreed on the Brexit Divorce Deal, meaning that the two sides are now ready to explore trade deals.  

Irish border arrangement 

The Irish border dispute cause the breakdown of Brexit talks on Monday, after the Northern Irish DUP refused to agree to May’s offer. This time the DUP have accepted, however, the wording is much vaguer in this new agreement, of how the Irish border dispute will be dealt with. There has been an agreement that no hard border will exist, but little else. So in fact this could be considered as kicking the can down the road. At some point a solution will need to be found, but that is not today’s focus. 

Market reaction 

Both the pound and the FTSE have moved higher on the news this morning. The FTSE is trading 0.3% higher, reversing losses from the previous session and pulling 7350 in sight. However, with the stronger pound Britain’s top share index could struggle to gain too much ground over the coming sessions. The pound did much of its celebrating at the end of the previous session, as hopes of a deal happening converted into a reality. 

Against the euro, the pound is trading 0.3% higher today, adding to its gain of 0.8% in the previous session. The pair are trading at a 6 month high with €1.15 in target. GBP/USD rallied 0.6% in the previous session, however has just eased off at the start of trading on Friday but this is to do with a dollar strength story as well. The dollar is seen trading firmly across the board, as investors cheer congress passing a stop gap spending bill, preventing the government from shutting down and as investors look ahead to the non-farm payroll report later today. 

NFP in focus 

The Labour market jobs report is expected to show that 185,000 new jobs were created in the US in November. This is consistent with continued growth in the labour market, which is supportive to the US economy and a hawkish Fed. 

The Federal Reserve are expected to raise interest rates next week, regardless of the outcome of today’s jobs data. However, the data could be useful for assessing what the Fed’s path of interest rate rises could look like next year. A strong reading will give the already solid dollar a boost. The dollar is trading 0.25% higher versus a basket of currencies at just shy of 94.00. A meaningful break above 94 could then open the doors to Oct Nov high of 95.15.