LONDON (Reuters) - Sterling climbed nearly 1% on Wednesday after Britain and the European Union said they had made “some progress” in trade talks this week.
Differences still exist, Prime Minister Boris Johnson’s spokesman said on Wednesday, repeating that the main gaps between the two sides were on fisheries and the ‘level playing field’, or guarantees of fair competition.
Reports that Britain and the EU are set to prolong Brexit talks past their mid-October deadline also helped the pound.
The UK quit the bloc in January, and a standstill agreement on their current relationship expires on Dec. 31. Both sides had previously set themselves this week’s EU summit in Brussels as a deadline to reach a Brexit deal.
Sterling was last up 0.9% at $1.3052, having touched a one-week low of $1.2865 earlier in the session on uncertainty over whether talks would be extended. It rose 0.7% against the euro to 90.11 pence after hitting a five-day low of 91.21 pence in the morning.
Simon Harvey, currency analyst at Monex Europe, said he believed a bare-bones deal on goods trade would be struck by the end of October, which should push sterling to $1.34.
“The tone seems to have shifted this afternoon to suggest the UK won’t walk away from the table in the case that a deal isn’t formalised ahead of tomorrow’s summit,” he said.
“The EU summit will still be pivotal for the pound, despite this more optimistic tone, as the currency starts to become extremely sensitive to Brexit headlines yet again and the risk, however small, that the UK will veer towards a hard exit remains on the table.”
Sterling’s implied volatility gauges had briefly hit a seven-month high of more than 13%, indicating investors were preparing for sharp moves in the currency.
“The chances of ‘no deal’ are still appreciable, but I continue to think that this would be more by accident than design,” said UBS economist Dean Turner.
“But through all the noise, we should stick to one thought: it is in neither side’s interests not to have a deal.”
MUFG’s head of research, Derek Halpenny, said the focus on fisheries, one of the last remaining sticking points in the talks, suggested a final deal was close.
However, any agreement is likely to be far removed from what analysts had initially hoped for, limiting gains for sterling even if a deal is signed.
Reporting by Olga Cotaga; Editing by Kevin Liffey
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