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Pound rallies as EU's Barnier fans Brexit deal hopes

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The pound rallied Tuesday after the European Union's top Brexit negotiator flagged the possibility of a divorce deal this week, reviving hopes Britain could avoid crashing out of the bloc.

[HONG KONG] The pound rallied Tuesday after the European Union's top Brexit negotiator flagged the possibility of a divorce deal this week, reviving hopes Britain could avoid crashing out of the bloc.

With the exit deadline on October 31, Michel Barnier's comments reinforced hopes for an eventual agreement between the two sides and came after reports said a compromise was taking shape.

Ahead of a meeting to update EU countries on negotiations, he told reporters: "This work has been intense all along the weekend and yesterday because even if the agreement will be difficult -more and more difficult to be frank - it's still possible this week."

Sterling surged 0.7 per cent to as high as US$1.2698, near levels not seen since July, before easing slightly. It also picked up against the euro.

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The currency had already been rising after Britain's Daily Telegraph said a divorce agreement was forming, with EU and British negotiators hailing a positive day of talks on the Northern Ireland issue.

The paper quoted unnamed sources as saying there was "cautious optimism", while the BBC said the EU is considering holding an emergency summit to push through a possible deal. It said there was not enough time to get anything done before a summit set for this week.

The pound had come under pressure on Monday after European officials played down the chances of an agreement that had been aired by British Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar last week.

David Kelly at JP Morgan Asset Management said the Johnson-Varadkar talks had sparked a "whirlwind of diplomacy between the British government and the Europeans to try to come up with an agreement this week".

He added in a note: "While it is by no means certain that the UK and Europe can agree to a deal or that such a deal can make it through the UK parliament, there does appear to be recognition from the British side that any Brexit deal will have to treat Northern Ireland very differently from the rest of the UK."

Barnier's remarks also boosted the FTSE in London, which rose 0.1 per cent in early business. Paris gained 0.7 perc ent and Frankfurt climbed 0.5 per cent.

AFP