The pound surged against the euro and the dollar on Thursday evening and Friday morning as hope grow that Britain will secure a Brexit agreement with the EU. Boris Johnson and Irish Taoiseach Leo Varadkar held positive discussions on Thursday afternoon boosting the chances of Britain achieving a deal with Brussels before the deadline. On Friday morning, outgoing European Council President, Donald Tusk, said he had “received positive signals from the Taoiseach that a deal is still possible”.
It came after Mr Varadkar announced he and Mr Johnson can see the “pathway to a deal” following the last-ditch discussions.
Sterling rose grew from €1.10 on Thursday afternoon around 3pm to €1.13 on Friday morning around 10am. While it grew from $ 1.22 on Thursday afternoon, around 3pm to $ 1.25 against the dollar on Friday morning around 11.30am.
The currencies appeared to spike following the discussions between the Irish Taoiseach and the Prime Minister.
Both currencies also saw a small boost on Friday morning, around the time when European Council President Donald Tusk delivered a positive Brexit speech in Cyprus.
Director of investment strategy, Barclays Private Bank, Henk Potts, told Sky News: “Sterling has of course been the instrument of choice for investors when they are looking to display optimism or perhaps more realistically pessimism around the prospects for Brexit negotiations.
“I think what we have been seeing is Sterling has been strengthening quite significantly, so that suggests some market participants believe we are getting closer towards a deal. That is something we haven’t seen for some time.”
He added: “It is incredibly fragile. Remember we have seen a lot of false dawns through this process.
“The reality is there are still some big hurdles to overcome. What we know is a no deal Brexit is still on the table, and that would have an impact on the UK economy.”
Michael Brown, Senior Analyst at Caxton FX, said: “Sterling continues to strengthen across the board, gaining ground as markets price in the increased probability of a Brexit deal as a result of UK-EU discussions entering the ‘tunnel’ – a period of intense, confidential negotiations aimed at finalising a deal.
“The pound currently trades at this highest levels since July against the dollar, having added over four percent in the last two days, the best such performance since the EU referendum in 2016.”
He added: “Looking ahead, the less that is heard from the negotiations, the better the outlook for the pound.
“With talks meant to be confidential, any significant leaks could indicate that significant gaps remain between each sides’ negotiating position.
“Should a deal be agreed, sterling would move to the upside, however, significant hurdles remain, namely passing such a deal in Parliament.”
Investment banking giant JP Morgan as hinted they now expect the UK to leave the EU with a deal following talks between Mr Johnson and Mr Varadkar.
The bank’s key Brexit watcher, Malcolm Barr, wrote: “This changes everything – we now expect a deal.”
After more than two hours of “detailed and constructive” discussions at a country manor on the Wirral, the two leaders said it was in “everybody’s interest” to get an agreement which would allow the UK to leave with a deal.
Mr Varadkar said he hoped the progress they had made would be “sufficient” to enable intensive negotiations to resume in Brussels ahead of next week’s crucial EU summit.
The Taoiseach said: “I think it is possible for us to come to an agreement, to have a treaty to allow the UK to leave the EU in an orderly fashion, and to have that done by the end of October, but there’s many a slip between cup and lip.
“In terms of how long it will take, I can’t predict that with any certainty, but I think all sides would like there to be an agreement next week at the council if possible.
“Obviously there’s a further deadline after that which is the 31st of October, so I would say a short pathway rather than a long one, but it’s impossible to predict that for sure.”
Mr Varadkar refused to be drawn on any “concessions” made by either side, while UK Government sources refused to be drawn on Irish press reports suggesting “significant movement” by the UK.
Speaking in Cyprus, the European Council President, Mr Tusk, said he had “received positive signals from the Taoiseach that a deal is still possible”.
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He said: “A week ago I told Prime Minister Johnson that if there was no such proposal by today I would announce publicly that there are no more chances because of objective reasons for a deal during the incoming European Council.
“However, yesterday when the Irish Taoiseach and the UK Prime Minister met they both saw a pathway to a deal. I have received positive signals from the Taoiseach that a deal is still possible.
“Technical talks are taking place in Brussels as we speak. Of course, there is no guarantee of success and the time is practically up. But, even the slightest chance must be used.”
He later tweeted: “The UK has still not come forward with a workable, realistic proposal. But I have received promising signals from Taoiseach @LeoVaradkar that a deal is possible.
“Even the slightest chance must be used. A no deal #Brexit will never be the choice of the EU.”
Brexit Secretary Stephen Barclay met with Mr Barnier on Friday morning as the chances of a breakthrough on securing a deal were given a huge boost after Thursday’s discussions.
The European Union’s Brexit negotiator Mr Barnier had a “constructive” meeting with his British counterpart Mr Barclay on Friday, a spokeswoman for the bloc’s executive, the European Commission, said.
Spokeswoman, Mina Andreeva said: “We are working towards a deal. If there is a will, there is a way.”
The Prime Minister has repeatedly said the UK will leave the European Union without a deal at the end of October.
But, Mr Johnson has also said he will abide with the law, despite the so-called Benn Act in place, which would require him to request a three month Brexit delay if there is no agreement by October 19.
Government sources have said ministers are preparing to hold an emergency Saturday sitting of Parliament on October 19.
On Friday, Mr Barnier said the EU and the UK have agreed to enter the “tunnel” phase of intensive Brexit negotiations in the coming days.
A statement from the European Commission said EU chief negotiator briefed the EU27 ambassadors after a “constructive meeting” with Mr Barclay.
“The EU and the UK have agreed to intensify discussions over the coming days,” the statement continued.
“The EU’s position remains the same: there must be a legally operative solution in the Withdrawal Agreement that avoids a hard border on the island of Ireland, protects the all-island economy and the Good Friday (Belfast) Agreement in all its dimensions, and safeguards the integrity of the Single Market.
“The Commission will take stock with the European Parliament and Member States again on Monday in view of preparing the General Affairs Council (Article 50) on Tuesday morning.”