Sterling is waiting for the confirmation of the Brexit agreement, approaching a maximum of 2-1 / 2 years

LONDON (Reuters) -Sterling rose to $ 1.36 on Thursday and is set to be the 2-1 / 1-year high, reached last week, as markets await confirmation that Britain and the European Union have finally concluded an agreement on trade management when the Brexit transition ends on 31 December.

FILE PHOTOGRAPHY: Notes and changes to the pound pound sterling can be seen at the box office in a cafe in Manchester, UK, on ​​September 21, 2018. REUTERS / Phil Noble

The currency has strengthened by about 1.5% against the dollar since Reuters on Wednesday around 1330 GMT, citing sources, reported that a Brexit deal seems inevitable.

It now stands at around $ 1.3580, an increase of 0.7% per day, after briefly rising above $ 1.36 and heading towards a 2-1 / 2 annual high of $ 1.3625 reached last week.

Against the euro, it rose 0.5% to 09.00 GMT to 89.7 pence.

There is no official confirmation yet, but sources say the deal is close because British Prime Minister Boris Johnson held a late-night conference call with his senior ministers, and negotiators have been negotiating legal texts.

Berenberg analyst Kallum Pickering said the agreement would remove the main negative risk to the British economy.

“This would unlock significant investment in the UK and support recovery as the current coronavirus shock begins to fade, as well as provide a positive backdrop to British stocks and sterling towards 2021,” Pickering wrote in a note to clients.

Although the pound and British stocks have gathered strongly in recent weeks as optimism rose during the last-minute deal, the consensus is that most British assets are still undervalued and will gain even after the deal is confirmed.

The functions of the pound also calmed down, with one-week implied volatility, a measure of expected changes – to the lowest since December 1 with 9.6%. That’s more than 7 percentage points since the first report of a recent Brexit deal surfaced on Wednesday.

FTSE mid-cap stocks, which are more oriented towards the domestic British economy, rose 0.6% and hit their highest value since February.

Asset manager Candriam told clients it was an overweight of British stocks and sterling.

“UK stocks are the ultimate value of the game. We should take full advantage of the relief if we find a Brexit agreement and recovery after we get out of the health crisis. “

Hopes over a Brexit deal boosted the cost of Britain’s 10-year government borrowing by more than 10 basis points on Wednesday.

Yields have since fallen by 1.5 bps, given the lack of fresh headlines and pressure on the British economy due to Brexit and coronavirus-related locks.

Reporting by Sujat Rao and Iain Withers Editing by Rachel Armstrong and Karin Strohecker