Analyst: Expect Upward Trend In Pound Sterling As Britain Preps To Leave EU

The pound sterling hit a two month high of $1.25 against the dollar Friday following comments from European Commission President Jean-Claude Juncker that he is positive the U.K. could reach a Brexit deal with the EU.

The deadline for the U.K. to Brexit and officially leave the EU is Oct. 31.

On Thursday, Juncker said a new Brexit deal could still be reached by the deadline, according to the BBC.

U.K. Prime Minister Boris Johnson has been quoted as saying he has made some "progress," adding it's important not to "exaggerate" this.

Optimism Would Have Been 'Inconceivable' Before

The pound sterling should continue on an upward trend, said Marc-André Fongern, an FX and macro strategist at MAF Global Forex.

“Juncker's recent comments undoubtedly contribute to improving the atmosphere around the pound sterling. The currency's downward spiral doesn't appear to be intensifying any further for the time being," he said.

The EU and Britain's willingness to reach a consensus and avoid a no-deal scenario is "an unexpectedly encouraging step" that would have been "entirely inconceivable" weeks ago, Fongern said.

"FX bargain hunters are already in the starting blocks."

Ireland Border Backstop Is Sticking Point

The backstop has been the key sticking point in the Brexit deal debate.

Irish Deputy Prime Minister Simon Coveney has said "everyone needs a dose of reality" after reports emerged that progress had been made. A "wide gap" still exists between the U.K. and EU in their talks about a new Brexit deal, Coveney said, according to the BBC.

The EU is still waiting for "serious proposals" from the U.K. for an alternative to the Irish border backstop, the deputy PM said.

The BBC also reports that, after a meeting with Brexit Secretary Stephen Barclay, EU negotiator Michel Barnier has said any U.K. proposals on the backstop have "to protect the peace in Ireland" as well as consumers and businesses in the single market.

When asked if he is optimistic about reaching a deal, Barnier replied: "I’m not optimistic. I’m not pessimistic. I’m still determined.”

Price Action

The iShares MSCI United Kingdom Index (NYSE: EWU) was down 0.41% at the close Friday, while the Vanguard FTSE Europe ETF (NYSE: VGK) was down 0.35%.

Related Links:

Brexit Update: UK Parliament Suspended Until Mid-October, Johnson Preps To Leave EU

'No End In Sight:' Boris Johnson's Brexit Prep Breaks The Pound, No-Deal Scenario Likely

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