Fresh Reports on EU Brexit Compromises Emerge, Could Underpin Pound Sterling's July Recovery against Euro and Dollar

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Further encouraging headlines for British Pound bulls ahead of the weekend are doing the rounds, with a seasoned Brussels journalist reporting that the EU's Michel Barnier is ready to make some significant compromises on behalf of the EU in order to get a trade deal agreed over coming weeks.

Reporting for The Sun newspaper, Nick Gutteridge says Barnier is "ready to water down his red lines - but can only take the plunge if the PM shows willingness to compromise".

This makes for the latest in a series of positive developments concerning Brexit which have allowed the Pound to recover through the course of July: the Pound-to-Euro exchange rate is back up to 1.1168 having started the month at 1.1040 while the Pound-to-Dollar exchange rate is at 1.2612, having started July at 1.2396.

According to Gutteridge, Barnier will offer the UK "a major olive branch by accepting euro judges won't play any role in the trade deal".

Barnier is also ready to soften his stance on fishing and the extent to which the UK will have to match European standards according to the report. However, rumours of compromise on fishing rights have been circulating for days now and were likely responsible for a sharp jump in the value of the Pound late last week when a transcript of Barnier's testimony to a committee in the House of Lords was made available.

These three issues: oversight of EU courts, fishing rights and the following of EU standards are widely held to be the three sticking points to a deal being agreed and signs of movement will likely see the market unwind some of those bets it had built up in anticipation of further Sterling downside.

Reports have emerged over the past ten days that the two sides were close to agreeing 'landing zones' for the outstanding issues, but no official confirmation of such progress has yet been issues which has understandably capped enthusiasm towards the Pound.

"Sterling has been able to recover strongly recently on the back of a more positive economic outlook, but Brexit risks should limit further appreciation potential," says Thu Lan Nguyen, FX & EM Analyst at Commerzbank.

Negotiators are due to reconvene in Brussels next week to try and thrash out further progress and we would imagine that an update out either on the Thursday or Friday would prove to be a key moment in Sterling's near-term outlook.

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