Pound Climbs As Top EU Official Says Brexit Deal Looks “Promising”

The pound extended its Thursday-evening gains on Friday after EU Council President Donald Tusk said he had seen “promising signals” from UK PM Boris Johnson’s Thursday meeting with Irish PM Leo Varadkar, according to the FT.

With these remarks, Brexit optimism, which has been slowly simmering all week, is cresting heading into the weekend after Varadkar said he could see a “pathway” to a deal. In one week, the UK and its EU partners will meet in Brussels at a EU Council meeting where Johnson hopes a final deal can be hammered out. Of course, he then would have to sell the deal to Congress.

Tusk said Friday during a speech in Brussels that “I have received promising signals from the Taoiseach [Varadkar] that a deal is still possible. Technical talks are taking place in Brussels as we speak. Of course, there is no guarantee of success and the time is practically up. But even the slightest chance must be used.”

However, Tusk cautioned that the UK still hasn’t come forward with a “workable, realistic proposal.” Varadkar has said he thinks a deal can be secured by the end of the month, but Johnson wants to nail down an agreement before the start of the EU Council meeting next weekend.

As we noted yesterday, Johnson and his team of negotiators believe winning over Varadkar is their best hope for a deal. After trying to negotiate with Michel Barnier, the EU27’s appointed lead negotiator, the UK believes Barnier is too intransigent in his positions, and can’t be trusted to meet the UK halfway, even after No. 10 has made meaningful concessions. Still, Johnson’s Brexit Secretary Steven Barclay met with Michel Barnier on Friday to work out the technical details of a “consent mechanism” and new customs arrangements for Northern Ireland. A spokesman for the European Commission later described Barnier’s meeting with Barclay as “constructive,” sending cable even higher. Whatever happens, Johnson and his team must ensure that a new deal can make it through parliament.

Deal optimism has triggered the best two-day gain for cable since June 2016 in the days before the Brexit referendum.

Even Julian Smith, secretary of Northern Ireland, said there was now a “distinct possibility” of a deal. According to the FT, details of a “compromise” deal could start leaking as early as Friday afternoon.

Most investment banks (including Goldman Sachs and Deutsche Bank) still believe the UK will leave the EU with a deal. But this wouldn’t be the first time that both sides have sent out signals that a deal is imminent, only for nothing to materialize.