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LONDON (Reuters) – The pound surged against the dollar and the euro on Monday, after the chief negotiator for the European Union said a Brexit deal was "realistic in six to eight weeks."
PHOTO FILE – A ten-pound note in English appears on an illustration taken on March 16, 2016. REUTERS / Phil Noble / Illustration / photo file
For the second time in less than a week, Michel Barnier has expressed his desire to continue negotiations on Brexit, less than seven months before the United Kingdom leaves the European Union on March 29, 2019.
Barnier, chief EU negotiator, said at a forum in Slovenia that it was "realistic" to wait for a divorce agreement with Britain, the British embassy in Slovenia said on Twitter.
For a largely shrunken market due to fears of Britain slipping off the trading block next year without any formal trade agreement, the UK can avoid a messy Brexit.
The British currency rebounded at all levels, rising more than 1% to 1.3052 dollars, its highest level in five weeks.
The pound also hit its highest level in a month against the euro at 88.96 pence against a euro-GBP = D3 while against the Swiss franc, GBPCHF = D3, the largest gain in a little over 18 months.
"It just shows that's what people want to see: Brexit progress. Your market is heavily short of sterling because of Brexit. This extreme risk must disappear before the pound sterling can recover, "said Viraj Patel, foreign exchange strategist at ING in London.
Before Barnier's comments, the pound sterling traded slightly against the dollar and the euro, with data showing that the British economy had been growing fastest for almost a year.
The data showed that British gross domestic product in the three months ending in July was 0.6% higher than the previous quarter, rising from 0.4% in June to June and at the top of the forecast.
The British pound has rebounded in recent weeks after reaching $ 1.27, thanks to Barnier's apparently favorable comments.
On Friday, he was quoted as saying that the EU was willing to discuss other "backstops" on Brexit, including the Irish border issue, a major obstacle to reaching an agreement.
"The possibility of an agreement, especially with one of the chief negotiators, is a bullish signal," said Craig Erlam, an analyst at OANDA.
The sentiment was, however, reached on Monday by warnings from a former minister, Steve Baker, that the Conservative party could separate if Prime Minister Theresa May persisted in her Brexit project, known as "Checkers."
Baker said that 80 or more members were willing to vote against the plan.
The comments, indicating the level of opposition within the party, came a day after former Foreign Minister Boris Johnson described part of the plan as "a suicide vest".
"Westminster will become a cloud before the Conservatives conference," said ING's Patel, referring to the May meeting starting Sept. 30.
Headlines on the Brexit negotiations have forced traders to swiftly change positions in a currency market that holds about $ 5.5 billion in short positions on the pound, based on weekly positioning data.
Reuters polls show that the pound sterling is up six per cent in one year, but a Brexit without an agreement between London and Brussels could bring it down eight per cent from current levels.
Chart: Global exchange rates in 2018 tmsnrt.rs/2egbfVh
Chart: Trade weighted Sterling since Brexit vote tmsnrt.rs/2hwV9Hv
Report by Saikat Chatterjee and Sujata Rao; Additional report by Abhinav Ramnarayan; Editing by David Stamp and Peter Graff
