Pound surges as Germany and UK said to ditch key Brexit demands
By Michele Maatouk
Date: Wednesday 05 Sep 2018
(Sharecast News) - Sterling shot higher against both the dollar and the euro on Wednesday afternoon following a report that the British and German governments have ditched key Brexit demands.
At 1440 BST, sterling was up 0.8% against the dollar at 1.2961, having surged as high as 1.2983 and versus the day's low of 1.2786. Against the euro, the pound was up 0.5% at 1.1153 after rising as high as 1.1164 and compared to the day's low of 1.1047.
Bloomberg cited people familiar with the matter as saying that Germany is prepared to accept a less detailed agreement on the UK's future economic and trade ties with the EU in order to get a deal done.
Markets.com analyst Neil Wilson said the report indicates that both sides are prepared to forego ironing out some details on the future relationship for now.
He noted that sterling is still below of the $1.30 level achieved when the EU's chief Brexit negotiator, Michel Barnier, said the UK would get a deal like no other third party.
"A couple of health warnings on this: first, Germany does not - despite its clear dominance of the bloc economically - actually speak for the EU position. Michel Barnier may well have something to say about this report. As might Theresa May.
"Second, we've heard these kinds of rumours lift the pound before and it should be treated with caution. There is a strong chance that this rally could run out of steam and retrace in fairly short order.
"But, it nevertheless it does still point to a degree of softening in the general tone of talks and that a deal is more likely than not."
Spreadex analyst Connor Campbell said sterling was squeezing every bit of growth it could from "a pretty vague" report.
"Of course Germany is only one part - if an admittedly powerful part - of the bloc. And we've seen multiple instances of positive, but eventually insubstantial, whisperings resulting in an exaggerated reaction from the pound over the summer. But none of that changes the fact that sterling went doolally for the dispatch."
Ranko Berich, head of market analysis at Monex Europe, said that even if confirmed, today's reports would not represent a breakthrough towards a comprehensive agreement of the sort hoped for by Theresa May.
"But at this stage, it looks like any hint the UK will be able to avoid a no-deal scenario is enough to give sterling strong support.
"The ease with which sterling has recently spiked on slim pieces of news tells us a lot about how quickly the pound is likely to rally in the event of any type of Brexit deal. This is partially due to stable domestic macro conditions, but primarily because of the high amount of downside risk currently priced in to sterling, due to fears of negotiations failing completely. Any deal that avoids the worst case scenario of a no deal exit is likely to cause significant sterling strength, even if it is no more than a can-kicking exercise in the classic Brussels style."
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