May 3, 2019 / 8:13 AM / in 18 days

Sterling surges to a 1-month high on Brexit deal hopes

LONDON (Reuters) - Sterling surged past $1.3150 on Friday after the leader of Britain’s opposition party said parliament must break the deadlock over Brexit and “get a deal done” to exit the European Union.

FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/File Photo

It also rallied to a one-month high against the euro as broad dollar weakness prompted investors to cut short positions heading into a long weekend with Britain shut for a local holiday on Monday.

Lee Hardman, MUFG’s currency analyst based in London said “optimism” over a “cross-party deal to break the impasse” had extended the move higher in sterling.

Traders heading into a three-day weekend in London may also be trimming any short positions in the pound in case they are caught out by positive news in the Brexit talks when markets are closed.

Jeremy Corbyn, leader of Britain’s Labour Party, said on Friday that the results of local elections held around the country the previous day should spur lawmakers to find a way to “get a deal done” to leave the EU.

He was quoted by ITV as saying there was now a “huge impetus” on every lawmaker to deliver a deal.

Against the dollar, the pound surged more than a percent to $1.3175, a one-month high.

Against the euro, the pound surged 0.9 percent to 84.98 pence, a new one-month high.

Investors have been broadly impervious to tepid economic data this week and relatively hawkish comments from the Bank of England at a policy meeting on Thursday.

The BoE said on Thursday that markets should expect interest rates to rise more in the next few years than they currently assume, if the economy grows as policymakers expect and inflation is brought back to target.

Trading in the pound has become far less volatile as investors sit on the sidelines while British politicians try to find a way out of a deadlock over Brexit.

Britain will not leave the EU until possibly the end of October after London and Brussels agreed a delay.

But Friday’s moves underscored how sensitive markets remain to the prospect of any deal.

“Hopefully, both the political parties draw their conclusions after yesterday,” said Kenneth Broux, a currency strategist at Societe Generale in London, referring to the local elections.

Prime Minister Theresa May’s Conservatives and the Labour Party were both punished by voters, who blame them for the deadlock over Brexit, partial results showed.

(Graphic - Sterling/dollar 3-month implied volatility, tmsnrt.rs/2DLBsWn)

Editing by Larry King and John Stonestreet

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