LONDON: Sterling soared on Wednesday to a six-week high and 1.7% on the day against the US dollar after a Bloomberg report that Brexit negotiations were due to start again after halting abruptly last week.
The report also said Britain and the European Union would aim to reach a new trade deal by mid-November.
“There has definitely been a narrowing in the gap since the UK shut the door last Friday. This is a positive and indicates that a deal is still more likely than not, though we would be cautious about assuming anything at this stage,” said Neil Wilson, chief market analyst for Markets.com.
The pound was on an uphill trajectory already on Wednesday after EU Brexit negotiator Michel Barnier told EU lawmakers a trade deal with Britain was still possible.
Barnier said a deal was “within reach” if both sides work hard to overcome the sticking points in the coming days.
“Time is of the essence ... Along with our British counterparts, we must find solutions to the most difficult areas,” he told the European Parliament. The pound was last at $1.3165, its highest since Sept. 8. The British currency also rose 1.2% against the euro to 90.25 pence. The EU and Britain have exhorted each other this week to compromise to avoid a disruptive finale to the Brexit drama that would add to economic pain from the coronavirus crisis. Kenneth Broux, head of corporate research at Societe Generale, said Barnier’s tone had given eager traders a reason to buy.
“The market doesn’t sit there thinking ‘there isn’t going to be a deal, we should be trading at $1.25’. The market wants to rally. Any positive soundbites that do come out are being jumped on as a reason to buy,” Broux said. Trading bots or ‘algos’ responding to the news story may also have helped push the pound higher, he said, while positive Brexit news could prompt hedge funds to offload some of their sterling short positions as well, adding to gains.
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