The Pound Advances on Euro & Dollar: Brexit Deal Possible in 24-48 Hours says "Cautiously Optimistic" Lidington

Image © Melinda Nagy, Adobe Stock

- Sterling overturns week's opening losses

- Key all of May says Brexit deal possible before mid-week deadline

- Adds to optimistic assessment made Monday by E.U.'s Barnier

The British Pound is on the front foot amidst reports a Brexit deal can be secured within the next two days.

The E.U. and U.K. are apparently close to a deal which could be secured in the next 24 to 48 hours, according to Prime Minister Theresa May’s de facto deputy David Lidington.

“We’re not quite there yet. We are almost within touching distance now. The PM has said it can’t be a deal at any price,” Lidington told BBC radio.

When asked if he believed it was possible a deal could be secured in the next 24 or 48 hours, he replied it is "still possible but not at all definite, I think pretty much sums it up. Cautiously optimistic."

The Pound-to-Euro exchange rate was quoted at 1.1488 in the wake of the comments, having been as low as 1.1397 at one point at the start of the week. The Pound-to-Dollar exchange rate is quoted at 1.2915 having been as low as 1.2873 at the start of the week.

The comments by Lidington confirm to markets that the two sides are working hard to secure a deal this November to ensure there remains ample time for all sides to push through the necessary domestic legislation to make a deal possible in March 2019.

Investors are acutely aware of the importance of a deal for the British Pound and the U.K. economy, with most analysts saying the outlook is constructive for both provided a 'no deal' Brexit is avoided.

The comments by Lidington follow those made by Prime Minister May at the Lord Mayor's dinner overnight that a Brexit deal 'almost within touching distance' says May deputy

The Pound has over recent hours overturned the +1% decline it suffered at the start of the week as the tone of reports surrounding Brexit negotiatons improves.

"Sterling is trading higher on the 'almost within touching distance' reference to a Brexit deal. Market optimism is rebuilding. I would expect further gains in Sterling in the short-term on a headline suggesting a deal is agreed," says Neil Jones with Mizuho Bank.

According to the Financial Times, the E.U.'s Chief Negotiator Michel Barnier has said a Brexit treaty "is almost ready".

Barnier is also quoted as saying:

"Even though this weekend negotiators worked tirelessley to reach an agreement as of this moment, this agreement is still not reached. As in any negotiation, the final stretch is always the most difficult.

"On the basis of our common efforts, the parameters of a possible agreement are verly largely defined, On the British side, the cabinet will meet Tuesday to examine these parameters. We are at an extremely sensitive moment. The smallest public comment from my side could be exploited by those who want the negotiations to fail."

"A battered GBP has reacted positively on improving prospects of a deal between the E.U. and the U.K. during the last few weeks. From a GBP perspective the announcement of a deal within the next few days will naturally give some additional support to the British currency, and also to the euro," says Richard Falkenhäll, Senior FX Strategist with SEB.

The E.U. wants to get agreement on a draft deal by the end of Wednesday at the latest if there is to be a summit this month to approve it.

Some E.U. diplomats said they didn’t have high hopes of a breakthrough this week while weekend reports suggested the E.U. were resisting key demands from Theresa May that would allow her to push any deal through parliament.

Prime Minister Theresa May told an audience at the Lord Mayor’s Banquet overnight that both sides are working hard for a deal but that significant issues remained.

May said:

"We are working extremely hard, through the night, to make progress on the remaining issues in the withdrawal agreement, which are significant.

"Both sides want to reach an agreement, but what we are negotiating is immensely difficult."

Based on comments last night and today it appears that the backstop for the customs arrangement that guarantees there will be an open border between Ireland and Northern Ireland after Brexit, and the mechanism for the U.K. to exit this setup in the future still remain unresolved.

Moreover, there are some disagreements on future fishing rights where U.K. fishing waters are important for some E.U. member states.

SEB's Falkenhäll says that while the near-term outook for Sterling will be boosted by a Brexit deal, expectations for a fullblown recovery might prove elusive.

"Conflicts within the British government as well as in Parliament, which makes an outcome of the coming Brexit vote in Parliament uncertain is another obstacle that has to be passed before a deal is fully secured. Only then can we expect a sustained GBP recovery," says Falkenhäll.

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