Pound Gains as Barnier Praises ‘New Dynamic’ on Brexit Talks

  • It could still take months to see sufficient progress: EU
  • Comments increase the likelihood of a smoother Brexit: MUFG

EU's Barnier Sees `New Dynamic' in Brexit Talks

The pound reversed earlier losses as the dollar fell broadly and EU chief negotiator Michel Barnier struck a more positive tone following the latest round of Brexit talks.

Sterling snapped four days of losses as investors sold the greenback ahead of the month- and quarter-end, according to currency traders in Europe and London who asked not to be identified as they aren’t authorized to speak publicly. The pound was also spurred by Barnier’s remarks that there had been a “new dynamic” in this week’s Brexit negotiations. The EU is said to be considering bringing forward talks on a transition period that would follow the U.K.’s exit from the common bloc, although Barnier said that it could be weeks or months before sufficient progress is made.

Barnier’s comments “increase the likelihood of a smoother Brexit outcome,” said Lee Hardman, an analyst at MUFG. “In particular, we are watching closely to see if the EU allows discussion to progress onto a potential transition agreement soon.”

Any concession on transition, which may make Britain more receptive to discussing its exit payment, could be “a significant bullish trigger for the pound,” said Hardman.

The pound rose 0.3 percent to $1.3430 as of 3:10 p.m. London time. Over in the options market, sentiment toward sterling has become less upbeat. The premium to own one-month calls relative to puts has declined to six basis points from 14 at the end of last week.  

The yield on 10-year U.K. government bonds was steady at 1.39 percent after rising almost five basis points earlier.

— With assistance by Vassilis Karamanis

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