Spanish, Dutch deny joint plan to seek softer Brexit

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Sterling's rally came after news that European countries Spain and the Netherlands would be open to the United Kingdom having a softer Brexit.

Citing a person familiar with the matter, Bloomberg said that Spanish economy minister Luis de Guindos and his Dutch counterpart Wopke Hoekstra had met earlier in the week to discuss Brexit. Some in the United Kingdom government favour keeping close ties with the European Union, the country's biggest trade partner, in what is known as a "soft Brexit", while others want a clean break. "They are also anxious about losing United Kingdom contributions to the European Union budget", the report said.

Meanwhile a lull in domestic data may leave the pound a little directionless for the remainder of this week, with GBP investors likely to turn their attention to next week's inflation figures.

As a result, the pound hit the highest level against the US dollar (GBP/USD) since the Brexit referendum, nearing the 1.37 barrier, while the pound also climbed against other currencies, making notable gains against the Canadian dollar, Australian dollar, New Zealand dollar, and South African rand.

Neil Wilson, senior market analyst at ETX Capital, said: "Although the comments came from just two ministers who don't necessarily speak for the Barnier team as such, there is a sense that the direction of travel for the United Kingdom with regards Brexit is a lot more positive than it was prior to December".

POUND GRAPH
LIVE The current exchange rate is $1.36717 to the pound

Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo, said: "Market reaction to dollar-buying factors has been subdued, while market reactions to dollar-selling, have been more vivid".

That news pushed the pound sharply higher, with sterling climbing as high as $US1.3693 against the dollar.

Neil Wilson at ETX Capital said: "Although the comments came from just two ministers who don't necessarily speak for the Barnier team as such, there is a sense that the direction of travel for the United Kingdom with regards Brexit is a lot more positive than it was prior to December".

Combined with slowing wage growth, households are beginning to feel the squeeze as their disposable incomes start to fall.

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