Sterling edged up Thursday as Britain and the European Union appeared close to a Brexit agreement, though investors remain on edge with any deal possibly facing strong opposition in Westminster.
After years of wrangling, the two sides said Wednesday they were edging towards the basis for a treaty allowing Britain to avoid crashing out of the bloc at the end of the month, which most observers say would be economically catastrophic.
EU negotiator Michel Barnier said there had been “good progress, and work is ongoing”, while another European official said: “We’re almost there.”
In early Asian trade, the pound was sitting around highs not seen since May against the dollar.
Hopes for an agreement come as the two work towards a solution to the vexed question of British-ruled Northern Ireland, with sources saying they were still trying to iron out details.
However, while Prime Minister Boris Johnson could strike a deal ahead of an EU summit that starts Thursday, there are warnings he will have a tough sell to MPs back home, particularly the Democratic Unionist Party (DUP), whose support he relies on to pass legislation.
“This could be the ‘white smoke’ moment where we see the outline of an agreement and can judge the likelihood of domestic ratification,” said Stephen Innes at AxiTrader.
“If an outline of a Brexit deal is announced, the next question is, can it pass in an ‘indicative’ (non-binding) vote as early as Saturday? The position of the DUP will be crucial.”
– Hopes for Fed rate cut –
The DUP are against any deal that would tie Northern Ireland to EU rules but cut the rest of the United Kingdom loose.
And Jeffrey Halley, senior market analyst at OANDA, said: “The DUP holds the balance of power and thus their voice counts much more than it otherwise would. Without them, the entire edifice crumbles, and we are back to the Groundhog Day Brexit extension and negotiation cycle.”
Asian equity markets were mostly lower after recent gains but Hong Kong was supported after US retail data missed forecasts and boosted expectations for another Federal Reserve interest rate cut. Comments in the Fed’s Beige Book update on the economy also pointed to a slowdown.
Hong Kong rose one percent and Shanghai added 0.1 percent with Tokyo also up 0.1 percent at the break. Jakarta also gained.
But Sydney dropped 0.5 percent with Seoul, Singapore, Taipei and Manila all off 0.1 percent.
Speculation about a possible US rate cut provided support to higher-yielding currencies against the dollar, with the Australian dollar 0.7 percent up and the South Korean won 0.2 percent stronger.
Oil prices fell after data pointed to a sharp rise in US stockpiles that reinforced worries about the impact on demand from the China-US trade war and the global economic slowdown.
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