The pound rose in early afternoon trade on Tuesday, even as UK prime minister Boris Johnson said a no-deal Brexit was still the “most likely” outcome from trade negotiations.
Sterling fell slightly on Tuesday morning in London but began to rally against the euro and dollar shortly after lunchtime.
The pound took a big leg higher late in the session after Nicholas Watt, BBC Newsnight’s political editor, tweeted: “Big buzz in the last hour among Tory MPs that the UK is heading towards a Brexit deal with the EU. Eurosceptics being reassured they will be happy.”
The rise came even as Johnson warned trade talks between the EU and UK could yet come to nought. The prime minister told his cabinet “ending the transition period on Australian-style terms remained the most likely outcome,” his official spokesperson told journalists.
Press reports in the last 24 hours have suggested progress in talks. The Guardian reported that UK concessions had paved the way for a deal as earlier as this week.
On Monday, Michel Barnier, the EU’s chief Brexit negotiator, reportedly told European leaders there was a narrow path to a deal. On Twitter, Barnier said the next few days of talks would be “important.”
Irish premier Michael Martin told journalists on Tuesday afternoon he had “greater hope than I had last week” that a deal could be done.
The path of negotiations in the next few days will be hugely consequential for the pound.
“Our analysts think it could go even higher if there were a deal,” Deutsche Bank strategists said on Tuesday morning. “We continue to see a move to around 1.36 in Cable upon completion of a deal, up from the $1.3343 it’s currently trading at.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, on Sunday said sterling could fall to $1.25 if talks end in no deal.
Brexit has been the main drivers of sterling’s price ever since the 2016 referendum.
Traders shrugged at news on Tuesday morning that UK redundancies had hit a record high. The data was in fact slightly better than forecasts.
On Monday, the government had announced London would also be placed in Tier 3 restrictions, which are likely to curb economic activity further. That too failed to do much to sterling.
“The discussions are ongoing,” Stephen Barclay, chief secretary to the Treasury, told on Sky News on Tuesday morning. “The fundamentals remain the same. It is in both sides’ interest to have a deal. That is what the prime minister has committed to.
“The prime minister is battling for Britain and whether there is a deal is not simply down to the actions of the prime minister, it needs the EU to move to respond to the precedent that they have given other countries.”
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