Why did Michel Barnier's latest Brexit remarks give the pound such a boost?

Brexit Secretary Dominic Raab will meet Michel Barnier this week. Credit: AP

“We are prepared to offer Britain a partnership such as there never has been with any other third country…”

Almost before Michel Barnier could finish that sentence the pound shot up, rising by more than a cent both against the dollar at $1.30 and the euro at just over €1.11.

The words of the EU’s chief negotiator, spoken in French to a German audience, have seen the biggest rise in the value of British currency in more than three weeks.

But why?

After all it’s not the first time the EU’s Chief Negotiator has suggested the UK would get a bespoke deal. Only last week he said this: “Our challenge for the coming weeks is to try and define an ambitious partnership between the UK and the EU - a partnership that has no precedent.”

But last week, there was little market movement and certainly nothing compared to today.

Josie Dent, an economist at the Centre for Economics and Business Research, believes it’s a combination of factors.

  • Tone

“I think the main message is a change of tone. It’s good news for Theresa May that he’s saying that he wants to make a deal and he wants it to be a good deal for the UK.

“I think today’s comments show he’s willing to accommodate some of what the UK wants in a way that he hasn’t said before.”

  • ‘Volatile’ sterling

“The pound is volatile at the moment, it reacts to any news quite strongly and a lot of traders are trading on the pound in the way they haven’t in previous years so we saw a strong appreciation today but we could easily see it undo over the next day or so just because it is so volatile.”

  • Fear of no deal

“Many people in the market had been worried that we wouldn’t get any deal at all, so this is a strong indication that there will be a deal which is why we’ve seen this appreciation of the pound.”

Joshua Mahony, a market analyst at financial trading firm IG, agrees Mr Barnier's positive tone had "helped raise the hopes for markets” but added "almost all the preceding 'breakthroughs' have been swiftly proven to be a false dawn".

Anand Menon, from UK in a Changing Europe, agrees. He’s told ITV News the deal being hinted at by Mr Barnier is not far off Canada’s arrangements with the EU.

“I think we get things out of proportion. The markets aren’t sages so often react to words not facts,” he said.

“And even what Mr Barnier said, given his caveats, is consistent with something a bit more than Canada - which could just mean more stuff on, for example, planes and security, which will have a big impact on our economy.”

Whether or not it’s just eager City traders returning from their summer holidays or a genuine breakthrough in negotiations will become clearer in the coming days, as Brexit Secretary Dominic Raab heads to Brussels to meet the man himself on Friday for further talks.

Right now though, after the summer she’s had, the Prime Minister will tonight be grateful to return home from her tour of Africa to that very rare thing - positive news.