(Bloomberg) -- Traders are turning more bullish on the pound on hopes the UK and the European Union will strike a post-Brexit trading deal for Northern Ireland, according to a senior Nomura International Plc currency trader.

“There are now some tentative longs being built up” in the currency, said Antony Foster, head of Group-of-10 foreign-exchange spot trading for the bank in London. After weeks of haggling, negotiators are close to finding to solutions at a technical level on issues including customs and state aid, Bloomberg News reported Friday.

A fresh accord could pave the way for improved trading relations with the EU bloc and boost investor optimism on the UK’s economic outlook. Since the Brexit referendum, the pound has fallen nearly 18% against a basket of currencies, weighed down in recent months by concerns over the nation’s slowing growth and sticky inflation.

“The pound has been the kicking boy of the FX world since Brexit,” Foster said in an interview. “It’s been baked into traders’ DNA to be short sterling.”

Accord Progress

Traders have been watching out for progress on a potential agreement ahead of a new election being called for Northern Ireland, according to Foster. The Democratic Unionist Party, which favors close ties with the UK, has campaigned for the existing trading regime — the so-called Northern Ireland Protocol — to be scrapped because it treats the region differently from the rest of the country.

A new deal could help the market move beyond “peak pessimism” for the UK, and could also open up the “possibility of incremental changes” to the wider EU-UK relationship that would help ease the drag on economic performance, wrote Derek Halpenny, head of research for global markets at MUFG, in a note to clients. 

Still, any Northern Ireland deal would still need the endorsement of political parties on all sides, and any agreement could still founder if it doesn’t get enough support. Foster also cautioned that positioning in sterling overall is low. 

Pound traders will be also focused on the outcome of the Bank of England’s rate decision later this week, with markets attuned to guidance on how close the central bank is to end its hiking cycle spurred by a cost-of-living squeeze. Leveraged funds trimmed their long positions in sterling, according to data from the Commodity Futures Trading Commission through Jan. 24. 

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