Sterling hits a 20-month high on Brexit breakthrough hopes with the DUP

HOPES of an end to the political deadlock over Brexit set currency markets ablaze today as the pound saw its best week for a year.

Sterling was on course for a 2% gain against major currencies amid reports that Theresa May’s uneasy parliamentary allies, the unionist DUP, could back her deal next week.

This would be in return for a time limit on the backstop, which keeps the UK within the EU’s customs union orbit unless a trade deal is agreed.

Although May still faces dozens of critics in her party who want the backstop to be removed altogether, the potential for a breakthrough pushed the pound as high as $1.3139 against the dollar at one stage.

It also touched 20-month highs against the euro of €1.1605, levels last seen in the run-up to the Prime Minister’s disastrous 2017 election, enjoying its best gains since last January.

The pound has been steadily gaining this week as Labour’s shadow chancellor John McDonnell has said the party could also back an amendment from two backbenchers, which calls for an extension of the Article 50 process if no deal is in place by February 26.

CMC Markets’ Michael Hewson said: “The pound is rising more in hope than in expectation and we have to hope that that does not get crushed next week. 

“Something has to happen… If we break through $1.3150 there is the potential to go higher, but I would be very cautious until we get a clear view about where we are going to be in the next five to six months.”

National Australia Bank currency analyst Rodrigo Catril added: “There appears to be a clear shift by Brexiteers and the DUP; they’d rather take May’s option than go for a referendum or a Remain outcome.”

Events elsewhere have also bolstered the pound amid fading hopes for rate hikes this year from the US Federal Reserve and downbeat comments on eurozone growth prospects from European Central Bank president Mario Draghi.