The agreement on the Northern Ireland Protocol can potentially end the Brexit saga that once sparked the risk of a trade war between the UK and the EU.

British media reported that European Commission President Ursula von der Leyen and UK PM Rishi Sunak had reached a final agreement in the dispute over the Northern Ireland Protocol. This agreement can potentially end the Brexit saga that once sparked the risk of a trade war between the two regions, thus triggering market enthusiasm.

The British pound quickly became the center of attention in the early session this week (February 27th). GBP/USD bounced more than 0.7 percent to around 1.2025, while EUR/GBP slipped about 0.3 percent to around 0.8800 within a few hours after the news spread.

gbpusdGBP/USD Daily chart via TradingView

Ursula von der Leyen met with Rishi Sunak to discuss the issue of the Northern Ireland Protocol in Windsor today. Initially, the meeting did not attract much attention, as the EU and the UK have held similar meetings without any results under the leadership of Theresa May and Boris Johnson. However, the BBC reported that a senior UK government staff member stated, "a deal has been done".

Steve Baker, the Northern Ireland Minister, and a hardline Brexit supporter, also told the media that Sunak had almost achieved a "fantastic result" for all parties involved.

Both sides are continuing negotiations to finalize the agreement's text, so the public does not yet know the full details. Once the final text is completed, von der Leyen and Sunak will hold a joint press conference. Sunak will then have to report to the UK Parliament, as any agreement will only be effective after receiving parliamentary approval and being signed by King Charles III.

"Upon the announcement of an agreement, and once again after the signing (of the agreement) in the UK Parliament, we expect to see moderate positive movements for sterling and UK equities," said Kallum Pickering, an economist at Berenberg Bank.

RBC Capital Markets also anticipates a rise in sterling and has chosen to sell EUR/GBP with a target of 0.8650. They said, "This week, we are taking a position against the long-term bearish view of GBP. Although we can ignore the possibility of an agreement this week on UK-EU trade as just lipstick on the Brexit pig, there is potential positive implications for GBP."