Sterling hit a six-month high against the euro as U.K. and EU negotiators struck a last-minute deal that paves the way for the start of trade talks next year, but the breakthrough has not cleared up the question of the Irish border and has raised another about the U.K.'s ongoing membership of the single market.
Sterling touched €1.15 in early trading in London — its highest level against the euro since June — as U.K. Prime Minister Theresa May and European Commission President Jean-Claude Juncker announced an accord had been struck, to broad relief at the end of a week that saw the talks close to collapse over plans to avoid a hard border between the Republic of Ireland and Northern Ireland.
"This is a difficult negotiation but we have now made a first breakthrough," Juncker said.
"I am satisfied with the fair deal we have reached with the U.K. If the 27 member states agree with our assessment, the European Commission and our chief negotiator Michel Barnier stand ready to begin work on the second phase of the negotiations immediately."
The European Council is expected to give the official green light to move on to trade deal negotiations at a summit next week, where the remaining 27 EU members will also draw up negotiating guidelines for the second phase.
A man imitating British Foreign Secretary Boris Johnson and a girl in a Superwoman costume play in a skit with a puppet of British Prime Minister Theresa May outside EU headquarters in Brussels on Dec. 8.
Source: Associated Press
The deal commits the U.K. to an exit bill of £35 billion to 40 billion, according to U.K. government officials, while May said EU citizens would have their rights "enshrined in U.K. law and enforced by British courts."
But the agreement also allows a continued role for the European Court of Justice in overseeing these citizens' rights for eight years after Brexit, a move which immediately drew scorn from high-profile Leave campaigners.
The text also raises the prospect of May's government applying the "regulatory alignment" principle it devised to resolve the Irish border issue this week to the rest of the country. Leave campaigners have said that keeping U.K. regulations tied to the EU's means continued membership of the single market in all but name, and would stand in the way of negotiating deals with other countries, such as the U.S.
Under the deal, the U.K. would remain a member of the single market and customs union for a two-year transition period, BuzzFeed reported.
The U.K. has guaranteed there will be no hard border in Ireland and said its intention was to achieve this "through the overall EU-U.K. relationship."
However: "In the absence of agreed solutions, the U.K. will maintain full alignment with those rules of the [single] market and the customs union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 [Good Friday] Agreement."
It added that in the absence of agreed solutions, the U.K. "will ensure that no new regulatory barriers develop between Northern Ireland and the rest of the U.K., unless ... the Northern Ireland Executive and Assembly agree that distinct arrangements are appropriate."
A statement from Arlene Foster, leader of Northern Ireland's Democratic Unionist Party, which scuppered an agreed deal on the Irish border earlier in the week, showed just how far there is to go on this point.
"We cautioned the prime minister about proceeding with this agreement in its present form given the issues which still need to be resolved and the views expressed to us by many of her own party colleagues," she said.
"However, it was ultimately a matter for the prime minister to decide how she chose to proceed."
The main U.K. business lobby welcomed the breakthrough, but again pleaded for more detail from negotiators to prevent firms acting on contingency plans to avoid the uncertainty.
"The breakthrough in Brussels shows that where there is a will, there is a way," said the deputy director of the Confederation of British Industry, Josh Hardie, adding that an important line in the document referred to agreeing transitional arrangements "as early as possible in 2018."
CBI President Paul Drechsler told the BBC that companies had begun triggering Brexit contingency plans months ago, but that more detail could help suspend further action.