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Mon 21 Oct 2019 03:18 PM

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UK pound hits 5-month high above $1.30 on Brexit optimism

Currency move comes as Prime Minister Boris Johnson requested another extension to departure from the European Union

UK pound hits 5-month high above $1.30 on Brexit optimism

Lawmakers on Saturday mandated the prime minister to break his promise and send a letter to Brussels asking for more time.

The pound hit a fresh five-month peak above $1.30 Monday on renewed Brexit optimism after Prime Minister Boris Johnson requested another extension to Britain's scheduled departure from the European Union.

At about 0830 GMT, the pound reached the highest level since May at $1.3012. It later stood at $1.2984, unchanged from late in New York on Friday. The euro was stable at 85.99 pence.

"Markets (are) starting to price in a best case scenario in terms of the deal getting passed this week and then a short extension to pass any necessary legislation," CMC Markets analyst Michael Hewson told AFP.

"Whether that optimism turns out to be premature is another matter; only time will tell."

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Johnson was Monday attempting again to push his EU divorce deal through parliament and avoid the political damage of delaying Brexit beyond next week.

Lawmakers on Saturday mandated the prime minister to break his promise and send a letter to Brussels asking for more time.

"The main driver (for the pound) is hope of a Brexit extension being more likely, which could result in a better exit deal potentially to be negotiated than is currently on offer," said Accendo Markets trader Samuel Springett.

The pound had already struck five-month highs last week on optimism over Johnson's Brexit agreement with Brussels.

The option of extending the three-and-a-half year crisis past the October 31 Brexit deadline is now in the hands of the 27 remaining EU member states.

Since spiking above $1.30 in the morning London session, sterling has since slid back underneath.

Yet the currency is attracting demand as traders buy on the dips, according to Maurice Pomery, who is head of trading firm Strategic Alpha.

"Markets are still trying to get to grips with what is going to happen with Brexit," he said.

"The pound topped out after taking out $1.30 today but UK bonds stalled at Thursday's lows," Pomery told AFP.

"Dealers seem to be watching bonds closely as we have seen decent moves down -- with yields higher -- across the board.

"The market seems to believe a no-deal is now off the table so we may yet see further gains in the pound."

Elsewhere, Asian equity markets mostly rose but there was little major movement in reaction to China's top trade negotiator Liu He saying at the weekend that Beijing and Washington had made "substantial progress" towards wrapping up a partial trade deal announced earlier this month.

The deal offered China a temporary reprieve from tariffs planned for mid-October, while Beijing said it would hike purchases of US agricultural goods.

But it did not roll back any of the duties already imposed on hundreds of billions of dollars in exports to the US, nor address another round of levies due in December.