Pound Dips Despite Historic Brexit Border Deal

UK Prime Minister Theresa May and Jean-Claude Juncker, the European Commission president, have signed a 15-page progress report in Brussels early on Friday, with Juncker admitting it had been a "difficult negotiation" in a press conference, the Financial Times reported.

However, a "willingness to compromise on both sides" and a €40bn-€60bn divorce settlement led to a deal that will secure the rights of four million EU citizens living in the UK to "go on living their lives as before", said May. 

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Sterling fell half a cent against the US dollar from above $1.35 to $134.65 as the deal was confirmed.

A final breakthrough came after "substantial changes" to the text of the deal regarding Northern Ireland's border were agreed. DUP leader Arlene Foster told Sky News: "There is no red line down the Irish Sea and clear confirmation that the entirety of the UK is leaving the EU, leaving the single market and leaving the customs union". 

EU officials will formally decide next week if the agreements represent "sufficient progress" to start the second phase of negotiations.

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Juncker highlighted while the progress is significant, lots more negotiating remains to be done to fully settle Britain's EU divorce.

Commenting on the negotiations so far he said: "On settlement of accounts, the Prime Minister [May] said in her remarkable Florence speech the UK would honour its commitments. This was a detailed process, but she has been as good as her word. She was negotiating in a gentle manner and I am very grateful for that."

Karen Ward, chief market strategist for Europe and UK at J.P. Morgan Asset Management, who until recently was Chair of the Council of Economic Advisers for the Chancellor of the Exchequer, said the next most pressing area to reach agreement is transition.

"Removing uncertainty around transition arrangements would serve as a tremendous relief to businesses on both sides of the continent given supply chains are highly integrated. It may also prevent financial companies in the UK enacting contingency plans at this stage. 

"The agreement on the end state relationship is highly complex. In this discussion both sides will have to reveal what compromises they are willing to make. The UK will have to assess whether it is willing to concede on control of its laws, its borders and its payments to the EU as a price worth paying for access to the single market.

"Compromise will be made on both sides. Given the political results in 2017 on the continent and the fact that, with the recovery, support for the euro is rising, the EU should feel more internally confident. It may feel less inclined to make an example of the UK with a particularly punitive deal and instead wish to avoid near-term supply chain dislocations that could result from a ‘no deal' scenario. 

"As negotiations continue in the background, Brexit fatigue may set in among investors, with more emphasis placed on the day-to-day data. If sterling were to hold on to its recent appreciation, then the squeeze on real wages, which depressed consumption in 2017, may ease significantly. If business investment is not entirely paralysed, then alongside less restrictive fiscal policy, an ongoing modest recovery seems feasible."