The pound rose one percent against the dollar on Monday following Michel Barnier’s comments that a Brexit deal was possible within the next eight weeks.
Barnier said in Slovenia: “I think that if we are realistic we are able to reach an agreement on the first stage of this negotiation which is the Brexit treaty within six or eight weeks.”
“The treaty is clear, we have two years to reach an agreement before they [the UK] leave … in March 2019. That means that taking into account the time necessary for the ratification process in the House of Commons on one side, the European parliament and the council on the other side, we must reach an agreement before the beginning of November. I think it is possible,” he added.
The Euro also rose 0.5 percent against the dollar.
The jumped as it was reported that EU leaders may announce next week that a Brexit summit will take place in November.
“It just shows that’s the key thing that people want to see: Brexit progress,” said Viraj Patel, a currency strategist at ING in London. “You have a market that’s heavily short on sterling due to Brexit. It needs that tail risk to be taken off before sterling can rally.”
Connor Campbell, analyst at Spreadex said: “Though, of course, the content of any deal is the thing that really matters, at the moment the pound will take what it can get”.
Chris Erlam, senior market analyst at OANDA, said: “Sterling has become very sensitive to positive Brexit news over the last couple of weeks, having spiked on a couple of occasions on reports that the UK will get a bespoke deal and that Angela Merkel is willing to accept less detail on future ties.”
“Clearly there is a feeling that a lot of Brexit pessimism and no deal risk has been priced in which is why we’re in a state of such sensitivity to any reports that indicate a breakthrough will come.”
The pound slipped back to $1.3042 by the end of the afternoon.