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Sterling extended its gains on more signs that the U.K. and E.U. are starting to see eye to eye when it comes to the post-Brexit transition and the Irish border issue ahead of the summit later this week.

Meanwhile, the euro snagged its fair share of wins as ECB sources reported that policymakers are starting to discuss the steepness of the rate hike path.

  • E.U. negotiator Barnier: Much of the post-Brexit treaty is agreed
  • Barnier: Draft treaty is a decisive step but Irish border still an issue
  • ECB policymakers comfortable with idea of first hike in Q2 2019?
  • ECB sources: Central bankers now debating how to phase out unconventional tools

Major Events/Reports:

Brexit deal signed, sealed, delivered

Following through on the positive Brexit news from the previous trading session, the U.K. and the E.U. finally struck an agreement on a 21-month transition period after their breakup and a possible way to address the Northern Ireland border.

Under this agreement, both sides have more time to iron out how their trade relationship would go before they part ways completely. Throughout this period, the U.K. would remain a non-voting E.U. member until the end of 2020.

By the looks of it, the parties are committed to maintaining the free flow of people and goods over the Irish border, but they have yet to agree on a system for any customs checks.

Barnier has also reiterated that this deal is legally binding only if the British government is able to sign the treaty before the end of this month. Brexit Secretary David Davis also noted that they need to include legal text on the ‘backstop’ solution for the Irish border.

ECB starting to discuss hiking path?

According to a Reuters report, sources from the ECB have mentioned that policymakers are now shifting their discussions to the expected path of interest rates as the taper has been underway.

Central bankers appear comfortable with the idea of having markets price in expectations for a hike by mid-2019 and are more concerned about the pace of tightening afterwards. More cautious members would rather keep future expectations contained to prevent derailing inflation.

One of the sources noted that the only reason to extend the bond-buying program would be to snuff out strong hiking expectations, although this can also be achieved using unconventional tools or forward guidance. Another source pointed to the need to manage tightening expectations on account of risks in trade and currency movements.

Major Market Mover(s):

GBP

Pound bulls kept charging for the most part of the session, building up on their momentum from earlier on. However, traders booked some of the profits before the day ended as the U.K. faces several top-tier catalysts this week.

GBP/USD climbed from 1.3973 to a high of 1.4089 before retreating to 1.4030, GBP/JPY popped up to 149.67 then fell back to 148.75, EUR/GBP found support at the .8750 mark ten recovered close to .8800, and GBP/CAD soared to a high of 1.8417.

EUR

The shared currency also grabbed some pips on whispers of rate hike talks going on in the ECB.

EUR/USD advanced from 1.2285 to a high of 1.2359, EUR/JPY is up to 130.85, EUR/AUD climbed from 1.5948 to a high of 1.6028, and EUR/CHF is up to 1.1736.

Watch Out For:

  • 12:30 am GMT: RBA meeting minutes
  • 12:30 am GMT: Australian HPI q/q (0.1% expected, -0.2% previous)
  • 4:15 am GMT: RBA Assistant Governor Bullock’s testimony