LONDON (Reuters) - Sterling pulled back from a three-week high on Wednesday after the dollar rebounded, and traders said investors were cautious about pushing the pound much higher until there was clarity on the terms of a Brexit transition deal.
The pound had risen to its highest level since Feb. 27 earlier on Wednesday when it hit $1.3996 against the dollar, before slipping back. It traded at $1.3949, down 0.1 percent, at 1620 GMT, while it was flat versus the euro.
“We are seeing a slight pullback in cable (sterling versus the dollar) as the dollar recovers following Tillerson,” Alexandra Russell-Oliver, an analyst at Caxton FX, said.
“But the pound remains highly sensitive to Brexit negotiations.”
The dismissal of U.S. Secretary of State Rex Tillerson had undermined the dollar on Tuesday and into Wednesday, but the greenback recovered slightly as U.S. markets opened, even as data showed U.S. retail sales fell for a third straight month.
There were no economic data to drive the pound on Wednesday, and traders remained focussed on the Bank of England policy meeting next week and a European Union leaders summit where Britain has said it will announce a deal on its relations with the bloc immediately after Brexit.
Sterling hit $1.4346 on Jan. 25, its highest level against the U.S. dollar since Britain voted to leave the European Union in June 2016.
Though it has pulled back modestly from those highs, it remains near the top of its trading range of $1.20 to $1.43, buoyed by hopes a Brexit transition deal will be eventually be struck and a generally weaker U.S. currency.
Scotiabank said the pound had shown “signs of shrugging off recent weakness” with downside support to be found if sterling drops to $1.39.
Reporting by Tommy Wilkes; Editing by Andrew Heavens