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Pound bounces back on Brexit transition hopes

Pound bounces back on Brexit transition hopes

The pound has recovered from yesterday's lows on hopes the European Union will offer the UK a two-year transition deal in Brexit talks.

Sterling yesterday fell sharply after the EU's negotiator Michel Barnier said that talks over the UK's divorce bill had reached 'deadlock'.

But it quickly bounced back after German newspaper Handelsblatt reported that Barnier may still offer the UK a two-year transition deal.

After falling as low as $1.313 against the dollar yesterday, sterling ended the day higher, the pound surged to $1.329 after the UK market closed on the transition deal report. 

Having reached as high as $1.332 this morning, the currency has now fallen back to trade at $1.326.

The pound's resurgence knocked the FTSE 100 from its all-time high hit yesterday, with the index falling 15 points to 7,541 in the morning's trading.

A stronger pound tends to hurt the index as its members rely on overseas markets for around three-quarters of their earnings.

'Next week's European Council meeting will be an important turning point for talks,' said Oliver Harvey, macro strategist at Deutsche Bank.

'Secretary [David] Davis [yesterday] reiterated May's appeal to EU27 leaders to revise their mandate for Barnier to be able to move talks onto transition in parallel with divorce,' he said.

'It also remains to be seen whether prime minister May can accept anything less than a full political commitment to a transitional deal from the EU27 in order to settle divorce issues.

'If neither of the above can be resolved, the likelihood of progress being reached by the December European Council meeting would decrease.'

With the pound see-sawing this week, markets have delivered decent returns for UK investors, as our exculsive Accumualtor data table shows.

You can access the Accumulator here. 

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