UK-EU Post-Brexit Reset Shakes Markets: Gilt Yields Surge, Sterling Rallies

The United Kingdom and the European Union have reached a landmark agreement to reset their post-Brexit relationship, prompting a swift reaction in global financial markets. The deal, confirmed during a high-level summit in London, was attended by UK Prime Minister Keir Starmer and European Commission President Ursula von der Leyen. While full details of the reset are pending, it reportedly includes agreements on defense, trade, and youth mobility. Analysts see the move as a significant geopolitical step, though critics argue it risks diluting Brexit’s original purpose.

Market reactions were immediate and pronounced. British government bond yields surged, particularly on long-dated gilts, reflecting increased borrowing costs. The 30-year gilt yield rose by over 8 basis points, with shorter-term yields also climbing. This spike comes amid broader global bond market volatility, especially following Moody’s downgrade of the U.S. credit rating, which sent U.S. Treasury yields above key thresholds, such as the 30-year yield crossing 5%.

Meanwhile, the British pound rallied in response to the UK-EU deal, jumping 0.7% against the U.S. dollar and trading at approximately $1.336. The euro also strengthened, climbing 0.7% against the greenback. Currency traders appeared to interpret the renewed UK-EU cooperation as a stabilizing factor for the British economy, even as equity markets remained largely flat or marginally down across Europe.

Stock indices reflected a muted investor sentiment despite the bond and currency market volatility. The Stoxx 600 closed flat, while Germany’s DAX hit another record high. The FTSE 100 edged up 0.17%, and France’s CAC 40 dipped slightly. However, certain sectors and companies did see sharp movements—Volkswagen, for instance, saw its shares drop 5% following calls for leadership changes, while Just Eat Takeaway received a €4.1 billion acquisition bid from Dutch tech investor Prosus.

Amid these financial shifts, other major developments added to the complex global outlook. Spirits giant Diageo projected a $150 million annual hit due to U.S. tariffs, while Ryanair reported a 16% profit drop but touted its strong market position. Investors are also eyeing a scheduled call between U.S. President Donald Trump and Russian President Vladimir Putin, after recent ceasefire talks with Ukraine collapsed. All these threads underscore the tense and interconnected nature of today’s geopolitical and financial landscape.

Source: CNBC