The European Union and the U.K. agreed on a draft 21-month transition deal to phase in Brexit, cutting the chances of a cliff-edge British departure from the bloc.
The pound rose against the dollar on news of the deal, which will allow the U.K. to negotiate trade deals with other countries during the transition period but also included a key British concession allowing EU citizens arriving in the U.K. to have the same rights as the 3 million already resident in the country. Parts of the color-coded draft made public remained in white, indicating no agreement had been reached on matters including the critical issue of the future of the land border between Northern Ireland, in the U.K., and EU member Republic of Ireland.
Michel Barnier, the EU's chief Brexit negotiator called the draft "a decisive step."
"We were able this morning to agree, and after all those days and nights of hard work, on a large part of what will make up an international agreement for the ordered withdrawal of the United Kingdom," he told a joint news conference with the U.K.'s Secretary for Exiting the European Union David Davis.
But he added: "We're not at the end of the road, and a lot of work remains to be done on important subjects."
The agreement, which will not be binding without a final deal, also sets out how the U.K.'s monetary obligations to the EU will be calculated.
The pound jumped 0.74% to £1.4047 at 2:46 p.m. in London after the announcement of the draft, which would allow the U.K. to negotiate new trade deals during the transition period.
"The United Kingdom will be able to step out, sign, and ratify new deals, new trade deals, with old friends and new allies around the globe, for the first time in more than 40 years," Davis said.
While agreement on the ability to negotiate new trade agreements was a significant victory for Prime Minister Theresa May, solving the issue of the Northern Irish border is key not only to the overall Brexit deal but also to the future of her minority government, which depends on Northern Ireland's Democratic Unionist Party, or DUP, for its parliamentary majority. The DUP is both pro-Brexit and adamant that it wants a soft border with the Republic to allow goods to cross without hindrance — something which the EU says would be impossible unless Northern Ireland remained in the EU's common tariff area, a condition that would potentially divide the province from the rest of the U.K.