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KATIE MARTIN: You might imagine that there's a huge sigh of relief spreading around sterling traders, but you would not be quite right. The currency has rocketed over the past week. Ever since UK Prime Minister Boris Johnson held what appeared to have been constructive talks with his Irish counterpart, Leo Varadkar in Merseyside, traders and investors have been able to see in the distance the vague outline of what appears to be a deal on Brexit between the UK and EU.
Suddenly, those predictions that the pound could drop to $1.10 or even lower are being ripped up. Instead, it's shot up from around $1.22 to $1.28. This is the market's way of saying it thinks the no-deal Brexit bombshell has been safely defused. Banks are starting to send out advice to their investor clients about what happens next.
What is the trade if-- bear with me here-- everything goes right? It's not just to buy sterling. Homebuilder stocks, bank stocks, and investments with a purely domestic UK focus are all thought to be in line for a boost. And indeed, they've already rallied. UK government bonds, a bolt hole for those worried about Brexit, also stand to fall.
So what's not to like? Well, Brexit has turned snatching defeat from the jaws of success into an art form. There is so much that can still go wrong. We're still beset by headlines suggesting a deal is on, and then it's still far too early to say. The shorts, the negative bets have peeled away from sterling, but few are brave enough to dive in and buy for the long term just yet. UK markets still have a long way to climb if a deal goes through. The end to this drama feels close, but we're not there yet.
