FX round-up: Pound jumps on return of optimism around UK politics

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Sharecast News | 15 Sep, 2019

Sterling jumped at the end of the week amid optimism around UK politics.

Speaking at the Convention of the North in Rotherham, South Yorkshire, Prime Minister Boris Johnson claimed that there was "the rough shape of the deal to be done", although he reiterated that Britain would leave the European Union on 31 October "whatever happens".

But EU chief trade negotiator, Michel Barnier, did not share his confidence, saying he had no reasons to be optimistic.

"I have been to talk to various other EU leaders, particularly in Germany, in France and in Ireland, where we made a good deal of progress," Johnson added.

Johnson was speaking before travelling to Luxembourg on Monday to speak with European Commission chief Jean Claude Juncker, amid speculation that a deal might indeed be in the offing.

Against that backdrop, cable jumped by 1.35% to 1.2501 while versus the euro it was 1.26% ahead at 1.1290 - its best level since June.

Also overnight, The Times had reported that the Democratic Unionist Party had softened its stance on a Northern Ireland-only backstop, although the DUP later denied that report.

Politics aside, in the background some strategists, such as those at Credit Suisse, were sounding a more positive note on the outlook for UK assets.

"We agree with our economists that the chances of a no deal Brexit are now much lower, while an early election looks very likely," Credit Suisse's Andrew Garthwaite said in a research report sent to clients.

A majority Conservative government would not rely on the DUP - avoiding the need for a backstop by imposing a border down the Irish Sea - whereas a minority government, be it Conservative or opposition, was likely to result in a second referendum, Garthwaite believed.

"Recent polls show that a Labour majority government looks very unlikely, though we believe the Lib Dems/SNP are more likely to have a 'confidence and supply' deal than a formal coalition with Labour which might allow some of Labour's taxation policies to be implemented," he added.

"We continue to believe the chances of a deal on the Irish backstop have been underestimated."

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