LONDON (Reuters) - The British pound pulled back from a two-month high and fell on Friday after Irish Foreign Minister said that London and the European Union were not yet close to a Brexit deal.
A report in the Financial Times that British Prime Minister Boris Johnson had told colleagues he did not expect to be able to reach full “legally operable” deal covering the Irish border at a meeting of EU leaders also weighed on sterling.
The losses came after a rally overnight following European Commission President Jean-Claude Juncker saying that agreement on a Brexit deal with the United Kingdom was still possible.
Johnson has vowed to take his country out of the EU on Oct. 31, with or without a deal, but UK lawmakers have voted to force him to seek a delay to the departure if he cannot strike a new agreement with Brussels.
The British government has since stepped up efforts to try and renegotiate the deal agreed by previous Prime Minister Theresa May but repeatedly rejected by Britain’s parliament.
Ireland’s foreign minister said the “mood music” had improved but London and Brussels were still a long way from clinching a new deal.
Sterling dropped 0.4% to $1.2463 after earlier hitting a two-month high of $1.2582.
Against the euro, sterling weakened from a four-month peak and was last down 0.3% at 88.35 pence .
Friday’s falls come in the context of a British currency that has risen from $1.20 in less than three weeks, as investors slashed their bets against the pound because of perceived receding risks of a no-deal Brexit.
Graphic: Sterling's rebound, here
“Should Juncker’s perceived optimism over a Brexit deal be found wanting and the UK-EU impasse become evident once again, the pound may very easily unwind recent gains and falter back towards the 1.20 mark against the dollar,” said Han Tan, an analyst at FXTM.
Reporting by Saikat Chatterjee and Tommy Wilkes; Editing by Pravin Char and Toby Chopra