Sterling briefly hits eight-week high in nervous markets

LONDON (Reuters) - Sterling briefly hit an eight-week high on Monday before gains were checked as investors consolidated bets ahead of a key EU summit and against the backdrop of a brewing political crisis in Ireland.

British Pound Sterling banknotes are seen at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

“There was some follow through buying on sterling in early New York and London hours but the concerns around the Ireland situation is keeping markets in very tight ranges,” said Neil Jones, Mizuho Bank Ltd’s head of hedge fund sales in London.

A deal on the Northern Ireland border - a key part of Brexit talks - has suddenly become trickier as the Dublin government looked set to fall.

Sterling briefly touched a near two-month high of $1.3383, and is on track to post its first monthly rise in three months.

But it gave up some of its early gains and traded back down to be flat against the dollar at $1.3351.

Last week, the pound rose more than a percent, its biggest weekly rise since Oct. 15 in a holiday shortened week in the United States and Japan.

While sterling currency markets, including derivatives, have been largely quiet in the run up to a crunch EU summit on Brexit in mid-December, investors worry the pound will become more vulnerable to political headlines as the date nears.

Irish Prime Minister Leo Varadkar, who has warned of vetoing progress on Brexit without big British moves on the border issue, may call a snap election next week over a separate issue.

“Sterling has become more jittery as the focus has changed somewhat from the EU summit which is more or less a binary event to the Northern Ireland issues which is a bit more complicated,” said Rabobank currency strategist Jane Foley, in London.

The European Union handed UK Prime Minister Theresa May a 10-day “absolute deadline” to improve her Brexit divorce offer, including a resolution on the Northern Ireland border issue, or face failure in persuading EU leaders to open trade talks with Britain at a December summit.

Sterling was flat against the Japanese yen at 148.41 yen.

Reporting by Saikat Chatterjee; Editing by Mark Potter