The pound (GBPUSD=X) jumped on Wednesday afternoon on fresh hopes the UK prime minister could count on Democratic Unionist Party (DUP) support for any Brexit deal agreed with Brussels.
Sterling lurched throughout the day, first sliding against the dollar in morning trading as last-ditch EU-UK talks to prevent British crashing out of the EU without a deal rumbled on for another day.
The future of the UK’s departure from the EU and Boris Johnson’s premiership could be hanging in the balance as the prime minister pushes for a deal before an EU leaders’ summit on Thursday.
EU sources told Irish broadcaster RTE a key stumbling block to any Brexit deal had been overcome, claiming MPs in Northern Ireland’s DUP had made peace with the latest plans to prevent a hard border with Ireland.
The news rallied the pound above $1.28, despite the DUP’s leader Arlene Foster quickly stating such reports were “nonsense,” according to Reuters.
Speculation is growing that Northern Ireland could receive billions of pounds of investment to encourage the DUP to back the government, after previously failing to back former prime minister Theresa May’s deal with Brussels.
Concerns over the likelihood Northern Ireland’s DUP may vote down any deal agreed with Brussels had spooked the markets in the morning.
The DUP warned “gaps remain” in a statement on Tuesday night, reflecting their longstanding constitutional concerns about any divergence between Northern Ireland and the rest of the UK if new trade barriers are created in the Irish Sea.
Other EU sources also said talks were at a “standstill,” while UK government sources were reported to be warning chances of a deal were narrowing and the Irish prime minister suggested many issues were still unresolved. Negotiators had missed a Tuesday night deadline for a breakthrough.
But sterling had been trading at five-month highs against the euro and the dollar in recent days amid speculation negotiators were closing in on a deal.
European council president Donald Tusk also struck a positive tone, saying the basics of a deal were “ready” and things would become far clearer within hours on Wednesday.
EU sources also told Reuters agreement had been reached on the issue of Northern Irish consent for any new border arrangements, with no further details on compromises made on Johnson’s proposals for a Stormont right of veto.
Customs arrangements had also seen progress, according to the sources, which could mark a significant step forward given its centrality to peace in Ireland, the integrity of the EU trade bloc and Britain’s future trade deals.
Agreement was also reported on a so-called ‘level playing field’ for firms in the UK and the EU, despite EU and UK opposition fears Johnson could use Brexit to deregulate and liberalise the UK.
Markets fear a no-deal Brexit could be catastrophic for the UK economy, with Britain plunged into uncharted territory if decades of trade ties are severed overnight on 31 October.
Meanwhile a government watchdog warned on Wednesday organised crime groups would “quickly exploit” border problems under a no-deal Brexit.
The National Audit Office (NAO) said efforts to keep trade flowing smoothly despite the sudden upheaval in rules could encourage criminals to exploit “perceived weaknesses, gaps or inconsistencies.”
The Scottish National Party (SNP) had also added to the political turmoil on Tuesday as its leader Nicola Sturgeon told its annual conference it would demand legal powers to hold another referendum on Scottish independence.
Sturgeon, Scotland’s first minister, said Brexit marked a fundamental overhaul of Scotland’s constitutional arrangements, and the country was being taken out of the EU against the will of its voters, with the majority backing remain.