The British pound got a boost from renewed Brexit hopes and investor risk sentiment on Tuesday, ignoring the fact that British employers made a record number of staff redundant in the third quarter.
Appetite for buying riskier assets grew after Pfizer and BioNTech announced a promising coronavirus vaccine on Monday, coupled with expectations that the UK will manage to clinch a deal with the European Union by the end of the year. The pound rose to a two-month high of $1.3222.
Money markets have pushed back expectations UK interest rates will turn negative, to June 2021 from May.
“A vaccine could make the biggest difference to the economic outlook for those countries that have struggled the most, especially with large services sectors like the UK,” said Stephen Innes, chief global market Strategist at Axi.
Sterling was last trading up 0.4% at $1.3211, and up 0.1% against the euro at 89.62 pence, close to a two-month high.
Echoing comments by Prime Minister Boris Johnson, British finance minister Rishi Sunak said on Monday that Britain and the EU have made significant progress in talks about a post-Brexit trade agreement and a deal can be done.
He also said that the government was unilaterally setting out how it would let European Union financial services operate in Britain after a post-Brexit transition period ends on Dec. 31.
An obstacle that might prevented the EU from signing off on a deal and possibly put off the U.S. president-elect, Joe Biden – the Internal Market Bill – was taken off the table after Johnson suffered a heavy defeat in parliament’s upper chamber on Monday.
The proposed laws would have allowed Johnson to breach Britain’s EU exit treaty – a plan that has been criticised by Biden.