Pound sterling on Monday traded up 0.2 percent at $1.3086, closing in on a six-week high of $1.3145. It was flat against the euro at 89.02 pence.
EU's chief negotiator has been reported to say on September 17 that "some parts of the draft withdrawal agreement have already been agreed in principle by the UK and the EU negotiators."
While the negative impact of Brexit no deal fears led to sterling losses against the dollar in August 2018, recent reported progress in negotiations boosted the British currency.
"The landscape seems much clearer as we have seen descent progress in the Brexit negotiations with both parties expressing optimism as they have stated that they are not far from reaching a deal. The market has been a recipient of the good news as we have seen the currency rallying and the interest rates going higher which is currently a good thing as Bank of England is in the process of tightening the monetary policy," a London top financial analyst, who wished to remain anonymous, told Sputnik.
According to the fund manager working in London's City district, "in case a soft Brexit deal is reached between Brussels and London, we should expect":
- Currency to recover almost back to June 2016 levels
- Stock market to drop as most of the stocks are multinational firms receiving revenues from various currencies and strong currency will hurt them
- Economy growth to recover in the medium term
- Interest rates to rise slightly faster
In case of a hard Brexit scenario:
- Currency to sell off a bit further although it is trading at low levels already
- Stock market to rally in the short term amid the weakness of the currency
- Economic slowdown to take place in the medium term
- Most likely another election
Among the reasons for economic slowdown, the analyst identified strong currency leading to higher inflation and rates remaining lower, while the economy remains too fragile to raise them and fight inflation. At the same time, the unemployment climb would moderately surge, reacting to businesses leaving Britain.
Mr. Barnier on Monday stressed that Britain and the EU bloc can reach a deal if they preserve the integrity of the EU's single market.
In Madrid today, cordial meeting with @sanchezcastejon to prepare for #Brexit #Salzburgsummit18. A deal with #UK is possible if integrity of Single Market is preserved. Full support for Spain in its negotiations w/ UK on #Gibraltar, which need to conclude asap. pic.twitter.com/lEhR65DSdK— Michel Barnier (@MichelBarnier) September 17, 2018
Monday also saw the International Monetary Fund warn of a negative economic impact if Britain walks away from the negotiation table without a deal.
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