(Bloomberg) -- The pound extended a rally and U.K. government bonds fell after BBC journalist Nicholas Watt tweeted about a feeling among British lawmakers that a Brexit trade deal may be close.
Sterling climbed as much as 1% to $1.3452, leading advances among Group-of-10 currencies, a sign of how eager traders are to pounce on a breakthrough in trade negotiations between the U.K. and European Union. The yield on 10-year gilts rose six basis points to 0.28%.
Both gilts and sterling have proved more volatile than peers as the Dec. 31 deadline nears, when the U.K.'s transition period ends. The pound's realized volatility in the last week was the highest among major currencies. Sterling climbed as much as 0.4% against the euro after the tweet to 91.49 pence.
The tweet drove the pound's gains, but “we do need more concrete official indications that a deal is indeed within reach to push us higher,” said Valentin Marinov, head of G-10 currency research at Credit Agricole. “In addition, I think that, by now, a deal is about 75% priced in -- that is assuming that EUR/GBP could go down to 0.88 if we get a deal done.”
Brexit negotiators got back to work in Brussels this week as they push to complete a trade accord. If talks fail and the U.K. crashes out, decades of free movement of goods, services, people and capital will come to an abrupt end. That would inflict the U.K. with a near-term economic shock of around 1.5% of output, according to Bloomberg Economics.
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