(Bloomberg) — The pulled back from a two-month high as Ireland warned a Brexit deal is not close, calming a rally sparked by optimism from European Commission President Jean-Claude Juncker.
The currency halted two weeks of gains after Irish Foreign Minister Simon Coveney said the “mood music” has improved yet there is still “quite a wide gap” between the U.K. and European Union. Sterling had been closing in on its longest run of weekly increases since January after Sky News reported Thursday that Juncker thinks a deal can be reached by the Oct. 31 deadline.
Pound traders are hanging on every word from both sides as they try to ascertain if an economically damaging crash-out scenario can be averted. Negotiations around Brexit have been stuck for months with little sign of movement as the October deadline looms for the U.K. to leave the EU.
“The pound could have more to gain on the upside over the short-term,” said Derek Halpenny, the head of markets research at MUFG, adding the bank remained skeptical until it hears supportive comments from Brussels on any U.K. proposals. “We certainly have to acknowledge there might be something in this but equally this could so easily be much ado about nothing.”
The pound was down 0.2% at $1.2501 by 13:12 p.m. in London, after touching the highest since July 15. It’s the best performer among peers this month, with a 2.9% rally.
The positive noise around efforts to forge a deal for now is just rhetoric that can be interpreted either way. Juncker himself said Wednesday that a risk of a no-deal Brexit was “palpable.”’
It’s “really unclear as to where things actually stand,” said Brendan McKenna, a foreign-exchange strategist at Wells Fargo (NYSE:) Securities in New York.
Sterling could rise 5% if a deal is clinched, or tumble to parity with both the dollar and the euro if the U.K. crashes out of the bloc, according to Shamik Dhar, chief economist at BNY Mellon Investment Management.
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