The pound has jumped after news the European Commission and the UK have agreed a draft text on future ties following Brexit.
Sterling gained more than 1 per cent against the dollar to rise above $1.29 as investors responded to the news that the UK and EU will have "a trading relationship on goods that is as close as possible.”
The pound’s rise caused the FTSE 100 index to fall below 7,000 once again as a stronger currency will take a dent out of companies’ overseas earnings.
The 26-page draft declaration, provisionally agreed by Theresa May and Jean-Claude Juncker today (November 22) outlines how trade, security and other issues will work.
While the agreement falls short on Prime Minister Theresa May’s desire for ‘frictionless’ trade in goods with the EU after Brexit, it strikes an ambitious tone.
The declaration stated: "While it cannot amount to the rights or obligations of membership, the parties are agreed that the future relationship should be approached with high ambition with regard to its scope and depth, and recognise that this might evolve over time.
"Above all, it should be a relationship that will work in the interests of citizens of the Union and the United Kingdom, now and in the future."
The declaration also stated that the EU and UK will aim to deliver trade in services that goes beyond World Trade Organisation commitments as well as an economic partnership that ensures no tariffs, fees or charges.
On financial services, the draft declaration states ties will be based on equivalence and that work on this will start as soon as possible to avoid disruption.