Sterling has recovered some ground today on some optimistic Brexit-related remarks and after a Bank of England policymaker (Ramsden) brushed aside talks of negative interest rates (for now).
Just over two weeks ago, when the internal market bill was announced, the markets were concerned that Brexit talks might immediately collapse and they were pricing in odds of 40-45% of a no deal exit at the end of this year. Recent comments from the UK government indicate they will avoid violating the withdrawal agreement and it seems the two regions are working out ways to avoid any major disruptions even if no deal was achieved. Boris Johnson’s spokesman has also said they’re working hard to achieve a deal with the EU and they’ve had beneficial exchanges regarding the Northern Ireland Brexit protocol, although there’s still a lot of work to do.
The next round of formal Brexit negotiations commences tomorrow and traders will be closely watching for any updates from these talks. However, as has often been the case with these talks, they like to leave things until the last minute, so this latest round of talks might feel a bit like déjà vu. Nevertheless, Boris has previously set a deadline of the middle of October as his deadline, ahead of the next EU Summit, so we can probably expect some developments nearer to then.
As a result, the GBP/EUR has moved to a 3-week high after gaining over 1% this morning. The GBP/USD has bounced more than 1.2% higher today and now trades at a 1-week high. Derivatives markets are expecting increased volatility moving ahead with the volatility index moving to the highest since the peak of the coronavirus panic.