The pound has hit a two-month high against the dollar, after European Commission president Jean-Claude Juncker said a Brexit deal was still possible.
Sterling has fallen in recent months as fears have grown of a damaging no-deal Brexit, but it rallied last week as the UK government talked up new proposals and Juncker’s comments late on Thursday gave investors fresh hope.
The pound (GBPUSD=X) extended Thursday’s gains on Friday morning, up about 0.2% to almost $1.26 against the dollar at around 9.20am to its highest since mid-July. It was up 0.1% against the euro (GBPEUR=X), trading just below €1.14.
Juncker said that Britain and the EU “don’t need the backstop” if a similarly robust solution to the vexed issue of the Irish-Northern Irish border after Brexit could be found.
He also said he did not have an “erotic relation” to the backstop, which was agreed between Brussels and the UK to maintain trade free of controversial border controls between Ireland and Northern Ireland.
Juncker’s words in an interview with Sky News are seen to strike a more accommodating tone, though EU figures have made the same point in less stark terms before and the gap between both sides remains significant.
It comes after the UK government finally passed over proposals in writing to EU diplomats, suggesting a limited agreement on cross-border trade in animals and animal products could help replace the backstop.
But Juncker said he did not know if the chances of a deal were more than 50-50, with less than two months until Britain’s planned exit date of 31 October.
UK prime minister Boris Johnson has strongly dismissed the idea of delaying Brexit, despite a vote by parliament obliging him to request an extension to Article 50 from the EU.
“Jean-Claude Juncker's recent comments undoubtedly contribute to improving the atmosphere around the pound sterling. The currency's downward spiral doesn't appear to be intensifying any further for the time being,” said Marc-André Fongern, FX and macro strategist at MAF Global Forex.
“Sterling looks set to continue its slight upward trend over the coming days as the likelihood of Britain leaving the EU without a deal is indeed diminishing.”
Naeem Aslam, chief market analyst at Think Markets, said: “The current development has created enormous optimism among Sterling bulls today. Overall, it is safe to say that the momentum is strong for Sterling and the current change in the EU narrative has opened the door for a major rally.”
He said sterling had seen its best weekly gain last week against the dollar since May.