Sterling moved sharply for the second successive day as the EU agreed to intensify Brexit discussions to reach a deal.

Risk appetite strengthened on Friday as the US and China announced a limited trade deal and suspension of the October 15th tariff increases.

Equity markets made further gains and US yields moved higher again on the day. The dollar edged lower as markets moved back into risk assets and commodity currencies rallied, although EUR/USD stalled above 1.1050.

Demand for the yen and Swiss franc faded as risk appetite strengthened. Weak Chinese trade data triggered a slightly more cautious tone on Monday and US yields edged lower.

Sterling moved sharply for the second successive day as the EU agreed to intensify Brexit discussions in an attempt to reach a deal.

Oil prices were underpinned by firmer risk conditions, although demand reservations continued. Precious metals were undermined by reduced defensive demand.

More positive Brexit sentiment provided an element of Euro support on Friday. German yields also moved higher and there were reports that the Bundesbank would run out of bonds to buy within 12 months. Overall yield spreads did not narrow further which limited the scope for further Euro buying and there was EUR/USD selling interest above 1.1050.

After holding firm in early Europe on Friday, there was choppy Sterling trading with gains following Chief Negotiator Barnier’s comments that talks had been constructive reversed after cautious rhetoric from EU Council President Tusk.

Ahead of the New York open, Barnier stated that EU countries had given him the go ahead to find a deal and that talks would now enter an intensive phase. Sentiment improved sharply as hopes for a deal increased and Sterling moved sharply higher, especially as gilt yields continued to surge. GBP/USD surged to 3-month highs near 1.2700 before correcting while GBP/EUR rallied to near 1.1500.

CFTC data again recorded only a slight weekly decline in short positions and there will still be substantial scope for short covering if political sentiment improves further.

There were mixed comments from Northern Ireland’s DUP with a warning that they could oppose any deal, but rhetoric from Brexiteer elements within the Conservative Party was more positive. Sterling edged lower on Monday as markets monitored Brexit developments with warnings over tough negotiations. The government will also announce its domestic agenda with GBP/USD retreating to around 1.2575.

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