LONDON (Reuters) - Sterling was on course for its third consecutive week of gains against the dollar on Friday, driven by renewed hopes that Britain and the European Union will reach a trade deal.
Britain left the EU in January and is in talks with the bloc on a future trading relationship after a transition period runs out at the end of 2020.
An EU official said the two sides are very close to agreement on most issues, even if they are still at odds over fishing rights, guarantees of fair competition and ways to solve future disputes.
European Commission President Ursula von der Leyen pointed to progress on “important files”.
A spokesman for Prime Minister Boris Johnson also reiterated that Britain wants to secure a trade deal as soon as possible, but it needs respect the country’s sovereignty.
The EU and British officials’ words reassured investors that negotiations are still ongoing after chief Brexit negotiators suspended direct talks on Thursday when a member of the EU team tested positive for COVID-19.
“For some weeks GBP has been supported by the view that some kind of deal will be announced this month. This is still the favoured outlook, though scope for any relief rally is set to be limited by the likelihood that any deal will be a skeleton one”, said Jane Foley, head of FX Strategy at Rabobank.
The pound gained 0.3% to 89.23 pence per euro at 1600 GMT, and it was on course for its second week of gains against the European single currency.
Versus the dollar, sterling was up 0.2% at $1.3287, on track for its third consecutive week of gains..
Analysts at ING said that there was scope on the upside for sterling against the dollar, while they saw limited upside versus the euro given the lack of a “material announcement on the negotiations”.
Foley added that if “no compromise is announced next week, growing fears about a no trade deal situation are likely to creep back into the market leaving GBP vulnerable”.
On the other hand, if a trade deal is agreed, Kit Juckes, chief FX strategist at Societe Generale, said in a note to clients that he expects sterling to reach 0.85 pence per euro.
Editing by Simon Cameron-Moore, Alex Richardson and Alexander Smith
Our Standards: The Thomson Reuters Trust Principles.