Tusk Strikes Surprisingly Optimistic on Brexit Process, Further Boosts Sentiment Towards British Pound

Tusk and Barnier

Mr Michel BARNIER, Brexit EU Chief Negotiator; Mr Donald TUSK, President of the European Council. Copyright: European Union.

The European Union has been more concillatory to the United Kingdom's approach to Brexit than at any point since the June 2016 referendum, a development that underscores Pound Sterling's recent rise.

The UK Government’s evolving stance towards Brexit negotiations has been given a cautious welcome by President of the European Council, Donald Tusk.

Following a meeting with UK Prime Minister Theresa May, Tusk said that while there has been no "sufficient progress" yet with regards to Brexit negotiations, he is "cautiously optimistic about Theresa May’s constructive, more realistic Brexit tone."

Tusk added the UK’s evolving stance recognised "the philosophy of ‘having a cake and eating it’ is finally coming to an end, or at least I hope so. And that's good news."

"But of course no-one will ever tell me that Brexit is a good thing because as I have always said, in fact, Brexit is only about damage control,” Tusk told reporters.

Tusk and May held talks at 10 Downing Street to discuss issues surrounding Brexit days after May sought to reenergise talks that appeared at risk of stalling.

The news comes as the British Pound continues to advance against the Dollar and Euro as uncertainty concerning Brexit is slowly eliminated.

The EU and UK are currently locked in the fourth round of negotiations in Brussels with an update likely to be delivered on Thursday.

Tusk’s constructive tone echoes that of European Union's chief negotiator Michel Barnier who said May's speech delivered in Florence on Friday, September 22 shows a "constructive spirit" to progress move on Brexit negotiations quickly.

Barnier said the Prime Minister's call for a two-year transition period and commitment to maintain some payments to Brussels showed a "willingness" to move forward.

The improved tenor on Brexit negotiations is supportive of the British Pound which will benefit as further clarity on the process is provided.

“We view PM May's Florence speech on Friday and the initial response from Michel Barnier as tentatively positive,” says Oliver Harvey at Deutsche Bank who believes the “recent rally in Sterling can continue”.

The Pound-to-Euro exchange rate has rallied back to 1.14 - ten-week high - as signals the Bank of England is looking to raise interest rates imminently combine with fading risk concerning Brexit.

The Pound-to-Dollar exchange rate has meanwhile advanced to above 1.36 before fading back amidst a broad-based Dollar rebound.

Only a breakdown in talks would risk putting the Pound under significant pressure once more as this would suggest the UK and EU were heading for a disruptive Brexit - a scenario most analysts agree would sink Sterling.

Barnier said he was "keen and eager" for the UK to translate the "constructive" sentiments in Mrs May's speech into firm negotiating positions on issues such as citizens' rights, the Irish border and financial issues, including the UK's so-called divorce bill.

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