The Pound has breached the 1.26 level against the US Dollar for the first time since early-July, and is set for its best two days since 2009. GBPUSD extended Thursday’s gains on hopes that a Brexit deal is becoming increasingly likely.
According the media reports, the EU’s chief negotiator, Michel Barnier, has indicated that both the UK and EU can now discuss the legal draft of the Brexit deal, although an official decision may only be made early next week. This is being interpreted as a positive development by the markets, as it moves the UK further away from a no-deal Brexit, while fueling Sterling’s gains of more than one percent today versus most G10 and Asian currencies.
Brexit talks must overcome political hurdles before it can claim more upside
While the looming October 31 Brexit deadline does provide enough impetus for both sides to reach a deal, any pact must be met with approval at next week’s EU leaders’ summit, followed by Westminster’s consent the following Saturday, October 19. If the Brexit deal can overcome all these political hurdles, then GBPUSD is expected to climb significantly higher and could breach the 1.34 mark.
Still, investors are at risk of getting carried away, as the detailed discussions could yet hit a brick wall. Should the UK-EU negotiations reach yet another impasse over the Brexit deal’s details, the Pound’s recent gains are likely to unravel rapidly back towards the lower 1.20 range.
Pound’s climb aided by softer Dollar amid US-China trade deal optimism
The Pound’s climb has been made easier by the softer Dollar, as the Greenback is now weaker against most G10 currencies, with the Dollar index (DXY) now testing the psychological 98.0 mark. Investors are hoping that some measure of a US-China trade deal will be announced over the coming hours, which is stoking risk-on sentiment while dampening demand for the Greenback. Still, it remains to be seen what the official outcome will be from the ongoing US-China trade negotiations in Washington, and how that will affect the currency markets heading into the weekend.
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