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UPDATE 1-Sterling bounces on hope of further Brexit talks

Wed, 14th Oct 2020 11:56

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Recasts, updates prices, adds chart and new comment)

By Olga Cotaga

LONDON, Oct 14 (Reuters) - Sterling climbed from the day's
lows on Wednesday after a source close to the EU-UK Brexit talks
said a trade deal is difficult but still possible and talks will
continue in the coming weeks.

The British pound had earlier retreated on uncertainty over
whether Britain and the European Union will reach a Brexit deal
before their self-imposed Thursday deadline at the EU Summit.

Sterling's implied volatility gauges soared to a seven-month
high of more than 13% indicating investors were
prepared for unexpected moves in the British currency in the
next hours.

British Prime Minister Boris Johnson and the head of the
European Commission, Ursula von der Leyen, will talk about the
progress of the Brexit negotiations on Wednesday afternoon.

Sterling was last up 0.1% at $1.2954, having
touched a one-week low of $1.2865. It rose 0.2% against the euro
to 90.61 pence after hitting a five-day low of 91.21
pence.

"The chances of no deal are still appreciable, but I
continue to think that this would be more by accident than
design," said UBS economist Dean Turner.

"But through all the noise, we should stick to one thought:
it is in neither side’s interests not to have a deal."

The two chief negotiators, the EU's Michel Barnier and
Britain's David Frost, say they are inching towards a deal,
though they have underscored that important gaps remain on
fishing, issues over a level playing field and governance.

Frost is due to tell Prime Minister Johnson after the EU
summit on Thursday and Friday if he thinks it is worth
continuing the talks and whether a deal is possible.

EU leaders meeting in Brussels on Thursday and Friday to
discuss Brexit will say that progress in talks with Britain is
"still not sufficient" to seal a new trade deal, according to a
draft summit decision seen by Reuters.

The EU would prefer to have a Brexit deal but is prepared
for the eventuality that no agreement can be reached, the
Commissioner for the EU's single market, Thierry Breton, told
BFM business radio on Tuesday.

MUFG's head of research, Derek Halpenny, said the focus on
fisheries, one of the last remaining sticking points in the
talks, suggests a final deal was close.

However, any agreement is likely to be far removed from what
analysts had initially hoped for, limiting gains for sterling
even if a deal is signed.

"We are only arriving at the possibility of a deal due to
its being very narrow in scope ... There is set to be
considerable disruption and frictions on trade that may well
still be underestimated by markets," Halfpenny said, adding that
this is likely to curtail any post-deal appreciation for the
pound.

(Reporting by Olga Cotaga
Editing by Raissa Kasolowsky and David Goodman
)

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