Sterling traded at a one-week high on Wednesday, helped by a weaker U.S. dollar and by hopes that Britain will forge a post-Brexit trade deal with the European Union in time for its departure from the customs union and single market in January.
Those hopes have been fed by recent positive comments from British government officials, but also by the announcement that Dominic Cummings, one of the political architects of the Brexit project, was set to leave the government.
The EU’s Trade Commissioner Valdis Dombrovskis said on Wednesday that Britain and the bloc were in the last moments to reach a trade deal.
“In case we get more optimistic headlines regarding a deal, and conditional upon risk-on returning into the markets, the pound is likely to perform better against the safe havens, the likes of the U.S. dollar, the Japanese yen, and the Swiss franc,” said Charalambos Pissouros, senior market analyst at JFD Group.
The pound was last trading up 0.4% at $1.3307 — a one week high — and also by the same extent against the euro at 89.17 pence. It was neutral versus the Japanese yen at 138.08.
British inflation picked up by a little more than expected in October, pushed higher by prices for clothing and footwear and food.
As England remained in full lockdown, on Tuesday reporting 598 deaths within 28 days of a positive COVID-19 test, the highest figure since May, worries persisted about how detrimental this could prove for the British economy.
Hopes that a vaccine could soon become available received a boost after two pharmaceutical companies recently reported successful results.
Bank of England Chief Economist Andy Haldane said the economic outlook for 2021 was “materially brighter” than he had expected just a few weeks ago.
BoE Deputy Governor Dave Ramsden said on Tuesday that positive news about COVID-19 vaccines could help to reduce the risks facing Britain’s economy but that the central bank was unlikely to revise up its forecasts as a result.