The dollar and pound rose after Brexit trade deal

The dollar increased, while the pound rose in a holiday-thinned session, after the United Kingdom and the European Union struck a post-Brexit trade deal, boosting hopes the UK can avoid a turbulent economic departure at the end of 2020.

On December 24, the United Kingdom made a trade deal with the European Union. After the Brexit trade announcement, the sterling pared gains while the greenback retraced some of its losses, as investors have already priced in the deal and have taken profits.

Furthermore, analysts say that serious concerns remain for the economy, which is on track for its most critical annual performance in 300 years, due to Brexit and Coronavirus’s combination.

In the early afternoon, the U.S. dollar index was slightly higher at 90.33. The dollar index increased by 0.4% on the week, enough to post its highest weekly gain since mid-November.

During the 2020 year, the greenback has declined by 6.4%, which is its worst yearly performance since 2017.

The British pound increased by as high as $1.3620. It was last up 0.3% at $1.3544, with the potential to rise to a two and a half year high over $1.3625.

The sterling also increased to a three-week peak versus the euro at 89.54 pence. The euro was last down 0.4% against the pound and stood at 89.95 pence.

According to chief global FX and rates strategist at Nordea in Copenhagen, Andreas Steno Larsen, the trade deal is merely enough to withdraw a cliff-edge scenario and keep goods from queuing up at borders. Still, it is not a broad-based trade agreement that includes services. He also added that this is a good scenario for the United Kingdom.

The Australian and New Zealand dollars witnessed gains

Furthermore, it has to be mentioned that currency markets have shrugged off President Donald Trump’s criticism of the fiscal relief package earlier approved in Congress, which could put the bill in limbo.

On Thursday, Republicans and Democrats in the U.S. House of Representatives blocked efforts to change a $2.3 trillion Covid-19 aid and government spending package, leaving its status in uncertainty after Trump required extensive modifications to the legislation.

Another essential thing to mention is that the greenback declined against risk-sensitive currencies. The Australian dollar increased by 0.3% and settled at US$0.7599, while the New Zealand dollar boosted by 0.2% and touched US$0.7109.