LONDON, Sept 28 (Reuters) - Britain’s pound climbed almost a cent against a weakening dollar on Thursday after Britain’s Brexit secretary said “considerable progress” had been made in talks and the EU’s chief negotiator praised a “new dynamic” from the prime minister.
Sterling had earlier been trading down on the day, dipping to as low as $1.3344 after Bank of England Governor Mark Carney said the bank could not by itself nullify the negative effects of Britain leaving the European Union on the economy.
But it turned higher as the dollar weakened and after Barnier said the two sides in the Brexit negotiations - Britain and the European Union - had “had a constructive week”, though despite progress they were “not there yet”.
Barnier said further work was needed in the coming weeks and months, but he praised a “new dynamic” created by concessions made last week by Prime Minister Theresa May in a speech in Florence, Italy.
Sterling strengthened to as much as $1.3456, up over half a percent on the day.
“He (Barnier) is suggesting that they’re making more progress now and that there’s positive signs in the negotiations this week,” said MUFG currency economist Lee Hardman. “That backs up the view that if this continues, there’s potentially some scope for EU leaders to grant some concessions to the UK.”
“If they were to allow the UK to start talking about a transitional deal alongside the divorce talks, that to us is a potentially significant positive for the pound,” he added.
Barnier’s British counterpart, Brexit Secretary David Davis, said they had made “considerable progress” in four days of talks in Brussels and repeated his eagerness to move on to discuss what happens after Brexit in March 2019.
“Sterling (is rallying) on the ‘considerable progress’ comments regarding Brexit talks,” said Mizuho’s head of hedge fund FX sales Neil Jones.
Having earlier dipped against the euro, sterling turned slightly higher on the day to 87.60 pence versus the single currency, close to a 10-week high.
Strong UK retail sales numbers on Wednesday bolstered expectations of a BoE rate hike in November - a view that lifted the pound above $1.3650 to its highest since the Brexit vote earlier this month.
“We stay of the view that the BoE is on track with tightening monetary policy as part of the November meeting,” wrote Credit Agricole strategists in a note to clients. “This in turn suggests that there is room of rising central bank rate expectations to the benefit of the pound.” (Reporting by Jemima Kelly Editing by Jeremy Gaunt)