The pound advanced after a report that the U.K. and European Union could strike a deal on their future trading and security relationship as early as next week.
Sterling climbed as much as 0.6% to $1.3272, extending earlier gains. The currency could strengthen to $1.35 by mid-2021 if the two sides negotiate a free trade agreement, according to a Bloomberg survey of analysts, a level not seen since December 2019.
Officials are planning for the possibility of a breakthrough to be announced as soon as Monday, people familiar with the discussion said, as the two sides edge closer to agreement. Optimism that they’ll reach a deal has helped drive the pound up 3% this quarter, even as time runs out for British and European parliaments to ratify the terms before a transition period ends on Dec. 31.
“It’s been a few weeks now that positive vibes have crowded out negative ones, though sticking points remain,” said Kenneth Broux, a strategist at Societe Generale. “I’m not convinced, but still hopeful, there will be a deal.”
There’s still potential for talks to collapse, people familiar with the matter said. In such a scenario, the pound would likely fall 5% by the middle of next year, according to Bloomberg’s survey.
— With assistance by Greg Ritchie