The first indication that Brexit progress could be imminent has come from EU’s Chief Negotiator Michel Barnier, who has suggested the possibility of a bespoke deal for the UK.
Speaking on Wednesday, Michel Barnier raised GBP trader confidence by saying: “We are prepared to offer Britain a partnership such as there never has been with any other third country.”
While this statement was lacking in precise details, it still raised hopes that a no-deal Brexit could be avoided.
Additional support for Sterling has come from French President Emmanuel Macron, who has reportedly asked EU leaders to come together and create a workable Brexit arrangement.
Emmanuel Macron has suggested a system of “circles” for the UK and EU after Brexit, with the EU in one circle and the UK in a second.
Although this plan still implies some degree of separation between the UK and the EU after Brexit, it has been seen as more palatable than talk of the UK being a “third country”.
A lack of Brexit progress over recent months has raised fears that the UK could leave the EU without a deal or miss key negotiation deadlines, but these latest developments have reassured Sterling traders.
The pound’s disappointing movement today is perhaps because of wider scepticism about an immediate Brexit breakthrough – RBA economists have cautioned that:
“We stress that even if there is a deal struck between the EU and the UK, an even tougher hurdle will be to get any deal through the UK House of Commons – which at present seems to have moved down the ladder of concerns.
“This is particularly true as any deal is unlikely to see the EU make any material concessions, as Barnier also highlighted yesterday when he stressed the importance of the integrity of the single market.”
This morning’s Eurozone confidence data has shown falling sentiment levels in most cases, but the euro has still managed to trade closely against the pound.
This afternoon will bring additional Eurozone news in the form of German inflation figures for August – if a faster pace of price growth is reported then the euro could rise against the pound.