Pound Surges Most in Six Months on Market Confidence Over Brexit

(Bloomberg) -- The pound climbed the most since March’s market turmoil on bets that a Brexit deal might still be possible next month.

Sterling rose as much as 1.7% to $1.3171, its highest in over six weeks, after Bloomberg reported that trade talks between the U.K. and European Union are on the verge of resuming. Negotiators have a goal of finding a deal by mid-November, according to people familiar with the matter.

“Rather than a walk away deadline, we now have in store a timeline on a potential deal,” said Neil Jones, head of foreign-exchange sales to financial institutions at Mizuho Bank. “There is an air of constructiveness on a deal that had not hit sterling previously.”

Pound traders have been looking for concrete evidence of progress in the U.K. and EU’s negotiations to achieve a trade deal before a transition period ends this year. That’s seen the market dismiss recent statements from either side as political posturing, with sterling barely budging on U.K. Prime Minister Boris Johnson’s recent threats to abandon talks.

Dollar weakness across the board also contributed to the move, though the pound still left Group-of-10 peers in its wake. Options traders did not join in the bullish sentiment, with demand for the pound steady in so-called risk reversal bets.

The news also hurt haven U.K. bonds, which extended losses to send benchmark 10-year yields up six basis points to 0.25%. That was the highest in more than a week.

“The quick resumption of talks provides reassurance that both sides are not that far apart and both want a deal,” said Lee Hardman, a strategist at MUFG Bank. “It reinforces the market’s confidence that a trade deal will be completed.”

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