Pound Sterling Strengthens in Anticipation of Potential EU-UK Trade Deal

Pound Strengthens on Hopes of EU-UK Trade Deal

The Pound Sterling started the week strong, gaining against most major currencies on Monday amid optimism surrounding a potential trade agreement between the European Union and the United Kingdom. The anticipated deal is expected to be announced during a trade summit in London later in the day.

Investors are closely watching the outcome, as the agreement could reinforce economic ties between the UK and the EU post-Brexit. According to William Bain, Head of Trade Policy at the British Chambers of Commerce, the deal could significantly benefit UK sectors such as defense, agriculture, and energy. Bain noted at a Jefferies event over the weekend that the non-binding defense component alone could unlock €150 billion in business opportunities for UK arms suppliers. Additionally, the deal aims to ease non-tariff barriers in the agricultural sector.

The British pound's recent strength is also supported by strong macroeconomic data. Last week, the UK posted better-than-expected GDP growth of 0.7% in Q1, further boosting confidence in the currency.

Meanwhile, the U.S. Dollar remains under pressure following Moody’s downgrade of the U.S. sovereign credit rating. Analysts believe that, despite inflationary concerns, the Federal Reserve is unlikely to cut interest rates this year, which limits support for the dollar.

Overall, market sentiment favors the pound in the short term as traders await clarity on the trade agreement and further signals from central banks.