The pound surged on Friday to its highest levels since early July after the European Union sent multiple signals that a Brexit deal was still possible.
The currency was up by more than 1.6% against the dollar (GBPUSD=X) and came close to hitting $1.27 following statements from both European Council president Donald Tusk and EU chief Brexit negotiator Michel Barnier.
“This is the biggest move since January 2017,” said Naeem Aslam, chief market analyst at ThinkMarkets.
Barnier said he had a “constructive” meeting with Brexit secretary Steve Barclay in Brussels earlier on Friday, and said that both the EU and UK would be “intensifying technical discussions” in the coming days.
He had earlier cautioned that Brexit was “like climbing a mountain,” saying that both sides needed “vigilance, determination, and patience.”
Market analysts, however, were cautious about the gains made by the currency.
“The ludicrous element is that we do not even know what is inside this deal that has made everyone so optimistic about everything,” Aslam said.
“Speculators are just pushing the prices higher. The odds of getting caught on the wrong side are high but we believe that the traders are paying attention to the beautiful phrases used by the lawmakers.”
Meanwhile, Tusk said that on Friday morning that he had received “promising signals” from Irish prime minister Leo Varadkar, who met with Boris Johnson on Thursday.
Following the meeting, Johnson and Varadkar released a joint statement saying they had “agreed that they could see a pathway to a possible deal.”
Varadkar and Johnson said that they had a “detailed and constructive discussion” at Thornton Manor hotel near Birkenhead in the north-west of England.
“Both continue to believe a deal is in everybody’s best interest,” the statement said.
Tusk said that he had been prepared to announce publicly on Friday that there were “no more chances” for a Brexit deal that could be agreed at the upcoming meeting of European leaders.
“However, yesterday when the Irish [prime minister] and the UK prime minister met they both saw – for the first time – a pathway to a deal,” Tusk said.
“I have received promising signals from [Varadkar] that a deal is still possible,” he noted.
He nevertheless warned that there was “no guarantee of success” and said that time was “practically up.”
“But even the slightest chance must be used.”
Neil Wilson, the chief market analyst at Markets.com, said that traders should “expect a big pump higher” in the currency if a deal looked more likely in the coming days.