Betting that the reward of better terms with the EU is worth the discord it might cause within his own party, Sunak also said Britain’s parliament would get a vote on the new agreement.

The deal is aimed at solving tensions caused by 2020 post-Brexit arrangements governing the British province and its open border with EU member Ireland.

Sterling rose 0.76% against the US dollar to US$1.2030, after slipping to an almost two-month low against the greenback in earlier trading. It is still set for its first monthly decline against the dollar since September.

The pound edged 0.2% higher versus the euro to 88.12 pence.

“We are not seeing any dramatic market movements right now… But it does take away the prospect of a very nasty tail risk for UK assets. Bad news averted is good news, I’d say,” Stefan Koopman, senior market economist at Rabobank, said.

“Even some of the more die-hard Brexiteers have stopped talking about all the opportunities that Brexit was supposed to bring. So we are now in the phase of damage limitation. That is – relatively speaking – a positive factor for sterling and UK assets going forward,” he added.

Focus on rates

Currency strategists said the focus remained on monetary policy, with the latest data showing a surprise return to growth by British businesses in February raising the likelihood of more interest rate hikes.

Money markets are pricing in a 97% chance of a 25 basis point (bps) Bank of England (BoE) hike in March, with rates seen peaking in August at 4.75%, from 4.00% now.

They are also pricing in a 56% chance of a 50 bps European Central Bank (ECB) rate increase in March and a 43% chance of a 75 bps move.

As the ECB could increase rates more than the BoE, the euro could find support against sterling. On the other hand, a strengthening dollar could send sterling to $1.1850 this week, ING said in a note.