Sterling rallies on hopes of Brexit deal

The pound rallied on Friday amid rising hopes of a Brexit deal — prompting forecasts that sterling could jump 8% by the end of the year.

After a turbulent summer of Cabinet resignations and mounting speculation over a cliff-edge Brexit, investors have rushed to hedge themselves against the possibility of a currency crash.

But reports that EU negotiators were “very close” to a potential breakthrough on the UK’s divorce deal ahead of a crucial European summit later this month sent sterling up nearly half a cent above $1.30.

Liam Fox, the International Trade Secretary, said he was willing to back a deal despite “reservations”, because “it is self-evident that it can be revised later on”.

Jordan Rochester, a currency analyst with Nomura, said the pound could jump between 6% and 8% to around $1.40 in the wake of a successful deal, as despite a political Brexit, firms can get access to EU markets until the end of 2020.

“From a long-term perspective, sterling is trading at crisis levels. Markets have been so worried about the no-deal and a general election people have been talking about for the past three months, that they have been looking to hedge falls. Now it’s the Fomo trade — fear of missing out.”

BNY Mellon analyst Neil Mellor said: “Every man and his dog is shorting sterling at the moment, it’s no wonder that the market is a little jumpy.”