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Currency, stocks perk up on hopes of Brexit deal

The pound jumps to 1.25 to the dollar; closes higher against major currencies

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Diplomats and officials are still warning that there would be several obstacles before a possible Brexit deal is achieved, despite market euphoria.

London

STERLING soared by 3 cents to more than 1.25 against the US dollar, the highest levels in the past month.

The pound was also higher against the euro, yen and Singapore dollar. UK and European stock markets, shrugged off recent pessimism and also rose. Despite the markets' cheerful reaction, diplomats and officials warned that there would be several obstacles before a possible deal is achieved. The past three years since the 2016 referendum has been littered with dashed hopes and failed currency and stock market rallies.

The current optimism follows Irish Prime Minister Leo Varadkar comments that Thursday's lengthy talks with British Prime Minister Boris Johnson were "positive and constructive". Mr Varadkar said that it was premature to disclose compromises over the Irish border with Northern Ireland. But he added that what happened on Thursday "would be sufficient to allow negotiations to resume in Brussels" and that there was a "potential pathway to a deal".

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The pound immediately rallied following the statement as it was a significant shift in tone from Mr Varadkar following days of acrimonious exchanges between London, Dublin and Brussels. Indeed, before the Thursday meeting, there were fears that Brexit talks were on the brink of collapse with both sides blaming the other. A major reason for Mr Varadkar's compromise is that Ireland's Central Bank has warned of a "marked deterioration in economic conditions" in the event of the no-deal Brexit. It predicted that the Irish economy would then slide into recession next year causing unemployment to soar

Illustrating the change in mood, the European Union's chief Brexit negotiator Michel Barnier cheerfully welcomed UK Brexit secretary Stephen Barclay at a breakfast meeting on Friday. A spokeswoman for the European Commission said after the meeting: "We are working towards a deal. If there is a will, there is a way."

To forge a deal, the UK government must make compromises relating to customs declarations and checks away from the Irish border. The Irish government has previously insisted that it will not accept the extra checks and controls as it fears that the bureaucracy will be unpopular and could reignite violence in Northern Ireland. The EU is also concerned that without proper border controls, Northern Ireland could become a back door into the EU's single market. There are also worries about smuggling and inadequate regulations. Mr Johnson's proposal was a regulatory zone to cover all goods of Ireland and Northern Ireland. But the EU fears that Northern Ireland politicians could choose to opt out of the regulations.

Mr Johnson must also obtain a deal approval from all 27 EU leaders and then sell expected compromises to his proposals to the Northern Ireland Democratic Unionists who have helped prop up his minority Conservative government. He must persuade the European Research Group, the hardline Brexitier Tories and hope that opposition Labour MPs, who support Brexit, will support him.

European Council President Donald Tusk emphasised on Friday that the latest round of Brexit talks carried no guarantee of success and that time was "practically up".

He added however that the negotiating sides must utilise "even the slightest chance" to obtain a deal before Oct 31. Mr Tusk had previously told Mr Johnson that unless a workable solution came from London by Friday, Oct 11, he would announce that a deal was all but impossible at the Oct 17-18 EU leader summit.

A poll published in The Telegraph showed that a failure to leave by Oct 31 with or without a deal would result in Mr Johnson struggling to win a majority in a general election.