The Pound Races Higher vs Euro & Dollar on News of Irish Border Breakthrough before Reality Dawns

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- Pound highly volatile amidst news of imminent deal

- Irish border agreement reached

- Markets wary of Conservative Party / DUP mutiny

It is reported E.U. and U.K. have agreed a text on how to avoid a hard border on the island of Ireland suggesting the final and most contentious stumbling block to a Brexit deal has been reached.

However, Sterling bulls are yet to pop open the champagne fearing that the deal in its current form will be roundly rejected by Brexiteers in the Conservative party and by Northern Ireland's DUP.

The news of a breakthrough on the Irish border comes amidst heightened speculation the two sides were closing in on a deal ahead of a mid-week deadline.

RTE's Tony Connelly - who broke the news - says two well placed sources say the text was "stabilised" last night, around 9PM and then transmitted to U.K. Prime Minister Theresa May.

One source tells RTE that the text is "as stable as it can be."

"It's understood there is one overall backstop to avoid a hard border on the island of Ireland. It will be in the form of a UK-wide customs arrangement, but will have "deeper" provisions for Northern Ireland on the customs and regulatory side," reports Connelly.

A senior source said to RTE it would be wrong to say negotiations were "concluded", and that there was still some "shuttling" between London and Brussels.

Neverthless, the Pound moved sharply higher in response to the news on the belief that the progress does enough to allow for a summit of European leaders to convene and sign off a deal before end-November.

"The Pound is surging as the U.K. and E.U. finally close in on a Brexit deal. Since the referendum result Brexit has proven a lightning rod for the Pound; with every rumour and statement attracting a reaction from the currency market. The markets have been crying out for certainty and the closer we get to a firm deal the further Sterling could rise," says Lee McDarby, Corporate IP Managing Director at Moneycorp.

The Pound-to-Euro exchange rate was at one point quoted at 1.1550, its highest level in seven months, but has since pared back to 1.1505.

The Pound-to-Dollar exchange rate was quoted as high as 1.3025 before paring gains back down to 1.2992.

Journalists close to Number 10 Downing Street are now saying cabinet ministers are being called in to see the Prime Minister ahead of a meeting to be held Thursday to sign off the Brexit divorce deal.

The "endgame is beginning," says the Sun's Tom Newton Dunn who has a strong hold on developments.

"Seems to be all lining up for Cabinet to sign off a text of divorce deal tomorrow... but but but, not confirmed yet and we have been here before," warns the BBC's Political Editor Laura Kuenssberg. "Source confirms divorce deal text agreed at technical level, Cabinet to meet early afternoon tomorrow, might be official confirmation soon."

Resistance

The draft withdrawal agreement, which has been drawn up alongside a statement of future relations with the EU, has not been published but is thought to run to some 500 pages.

The Pound has retreated from highs following the news of a breathrough after a number of high-profile Brexiteers in the Conservative party lined up to denounce the deal suggesting whatever is agreed with Europe won't actually make it through Parliament.

Leading Brexiteer Jacob Rees-Mogg told BBC Newsnight he was so unhappy with the agreement he could withdraw his backing for Mrs May.

Former foreign secretary Boris Johnson described the reported agreement over the Northern Ireland backstop as "utterly unacceptable to anyone who believes in democracy", and said he would vote against it.

former Brexit Secretary David Davis said: "Cabinet and all Conservative MPs should stand up, be counted and say no to this capitulation."

DUP leader Arlene Foster warned it would be "democratically unacceptable" for Northern Ireland's trade rules to be set out by Brussels, and that "without a clean exit, the UK will be handcuffed to the EU".

More gains for British Pound Possible

Sterling had been expecting some good news ahead of the mid-week deadline.

Earlier we reported the currency to be on the front foot amidst reports a Brexit deal can be secured within the next two days as 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."

Analysts are telling us further gains are possible.

"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.

"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.

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