The pound bounced back on currency markets on Tuesday after the Telegraph revealed that British and EU negotiators have broken the deadlock on the Brexit divorce bill.
After being dragged down earlier in the day by Bank of England governor Mark Carney’s gloomy warning of potential Brexit “pain”, sterling spiked above €1.12 against the euro as traders piled into the currency on news of a breakthrough in talks.
The long-awaited progress propelled the pound from a 0.6pc loss to a 0.6pc gain against the euro in a matter of minutes while it soared back above $1.33 against the dollar.
Uncertainty surrounding Brexit negotiations has proved a major impediment to the pound’s recovery this year with stumbling talks offsetting gains made as the Bank of England prepared markets for the first interest rate hike in a decade.
The Telegraph understands that the final divorce bill will be in the range of €45bn and €55bn with the breakthrough likely to soothe jittery markets concerned that the bill was becoming a major sticking point between the two sides.
The pound’s climb indicated there was a “nervousness” on the markets ahead of crucial talks and “a bit of political risk [already] priced” into the currency’s performance, ING currency strategist Viraj Patel commented.
He added that the pound’s performance in the coming months “will hinge on getting more clarity and giving businesses and consumers that extra layer of confidence”.
As Brexit uncertainty mounted, analysts warned in late summer that the pound was drifting towards parity with the euro and sterling fell as low as €1.07 against the currency as the robust recovery in the eurozone accelerated.