Sterling held near a three-month high on Thursday as U.S. dollar weakness offset some of the uncertainty about the outcome of Brexit talks.
Traders are looking for progress on a trade deal between Britain and the European Union. A successful deal is priced in, but fears persist that the discussions could break down.
The head of the EU executive, the Commission, reported “genuine progress” on Wednesday but said the risk of Britain leaving the bloc without a deal on Dec. 31 remained.
Sterling, in common with British stocks, has largely shrugged off finance minister Rishi Sunak’s unprecedented spending plans announced on Wednesday, as Britain looks to borrow about 400 billion pounds ($535 billion) to pay for the COVID-19 hit to the economy.
Sunak warned on Thursday that borrowing was not forecast to fall fast enough to be sustainable, the closest he has come to acknowledging that taxes will need to rise once the pandemic is over.
He also said he was confident a trade deal with the EU could be struck.
With just five weeks left until the United Kingdom exits the bloc, both sides are trying to reach a trade deal that would avoid a tumultuous finale to the Brexit crisis.
“Brexit uncertainty is a big driver behind the pound at the moment. Resolution on that would have a much bigger impact, for better or worse, than events like the Chancellor’s speech yesterday,” said Mimi Rushton, co-head of global FX sales at Barclays.
“There is a broader theme around dollar softness at the moment, the month-end signal is for dollar-selling and some of that has been brought forward by Thanksgiving in the U.S.,” she said.
The pound was down 0.22% at $1.3354 in early London trading after hitting an early September high of $1.3399 in Asian trading. It slid slightly against the euro to 89.1 pence.
With a lack of major scheduled news on Thursday, sterling traders said they would be watching for any official or unofficial news on the Brexit talks, with negative signals likely driving bigger price swings because a positive outcome is expected.
($1 = 0.7481 pounds)
– Reuters