The pound jumped more than 1.1 per cent against the dollar on Thursday, after European Council president Donald Tusk said a declaration on the future relationship between the EU and the UK had been agreed ‘in principle’.
Mr Tusk said in a tweet: “I have just sent to EU27 a draft political declaration on the future relationship between EU and UK. The Commission President has informed me that it has been agreed at negotiators’ level and agreed in principle at political level, subject to the endorsement of the leaders.”
Sterling hit $1.2922, and rose 0.65 per cent against the euro to reach €1.1299.
The leaked document shows that frictionless trade between the UK and the EU would come to an end after Brexit.
The political declaration is the second element required to form the Brexit deal, along with the withdrawal agreement.
It is understood that the draft has been approved by the European Commission, and now requires the EU member states, excluding the UK, to sign off on it.
However, several countries, including France, Spain and Denmark, have raised concerns that earlier drafts of the plan gives too much away to the UK.
Prime Minister Theresa May was plunged into a leadership crisis last week after unveiled a draft Brexit agreement, with a number of Conservative MPs vowing to vote against it.
Ms May is set to deliver a statement to Parliament on Thursday afternoon.
Joshua Roberts, associate at consultancy JCRA, said sterling’s spike might not be a signal that the declaration will bring about great change.
“Despite the positive language, it is difficult to find much in the text that we didn’t know already,” he said.
“There is a reasonable chance that the market response is the result of trading algorithms activated by a positive headline, rather than the start of a bigger move.”
