Pound to Euro rate: Sterling spikes to highest level since July on fresh hopes of Brexit deal

The battered pound surged on Friday on fresh hopes that the UK can strike an agreement with the EU and avoid a no-deal Brexit.

Sterling, above $1.60 against the US dollar just five years ago, has had a torrid year on parliament’s failure to come to terms with the European Parliament following the 2016 referendum.

Today it rose to its highest since July, up nearly a cent against the dollar at $1.2439 and over half a cent against the euro at €1.1215.

Traders reacted to a report in The Times, which said the Democratic Unionist Party was willing to compromise its previous hardline stance on Northern Ireland.

The paper said the DUP will accept that Northern Ireland abides by at least some EU rules, replacing the so-called Irish backstop.

Kit Juckes, chief FX strategist at Société Générale, said: “There is a tiny chink of light from under the Brexit door. There’s a better than 50/50 chance right now we’ll get a deal. I think eventually we’ll get a deal similar to Theresa May’s and then we’ll have a referendum on whether or not to accept it.”

Markets were also cheered by further signs that trade tensions between the US and China are easing. Beijing indicated last night that it could increase purchases of US agriculture products, a goodwill gesture ahead of talks next month aimed at ending the tariffs war.

Asian shares moved higher, with Japan’s Nikkei up 1% to 21,982. In London, the FTSE rose initially, but later slipped 16.37 points to 7328.30.

Sterling has had a good week, rising 1% in all against the dollar and 0.5% against the euro. Not everyone is certain this rally will continue. Lee Hardman at MUFG said: “We believe there is only limited scope for the pound to extend its advance at the current juncture, with UK political and Brexit uncertainty set to remain elevated.”

One City trader admitted to being unsure, saying “trading sterling with conviction is like backing Nelly’s Return in the 3:45 at Uttoxeter”.

Yesterday the European Central Bank unveiled a rate cut and restarted its quantitative easing bond buying programme.

Neil Wilson at Markets.com said investors are now betting that ECB president Mario Draghi has “run out of ammo” to prop up the ailing eurozone.

“We sense a bit of disappointment after the ECB despite the QE ad infinitum, Draghi delivered in many ways but it’s just increasingly clear the ECB is out of ammunition.”