Sterling edged up in London trading on Friday, set for a weekly gain against the dollar and euro, as Britain and the European Union entered intense negotiations on a Brexit trade deal.
The pound had its best day in seven months on Wednesday, surging 1.7% against the dollar, when Britain and the EU said they would start the new phase of negotiations.
Prime Minister Boris Johnson’s spokesman had said a week earlier that talks were over - a move markets saw as brinkmanship.
By Friday, the pound had eased some gains but was stabilising near the new highs.
Overnight news that Britain had signed a post-Brexit trade deal with Japan did not move the pound. The market is more focused on the possibility of an EU-UK deal.
“Anything that brings a deal - any deal - closer to the table is going to see sterling strengthen. Anything that highlights the risk of no-deal is going to see sterling weaken,” said John Goldie, an FX dealer at Argentex.
But Goldie said this week’s moves suggest the dynamic is skewed, as sterling rallied more on positive news.
“Sterling dropped on the risk of no-deal being highlighted, but actually we didn’t break new lows or anything... but on the prospect that we are still willing to compromise, we’ve broken new highs. So it’s almost like the market wants to see a deal be done,” he said.
At 0753 GMT, sterling was at $1.3095, up 0.1% on the day and up around 1.4% on the week. It hit a six-week high of $1.3177 on Wednesday, and since then has not fallen below $1.3050.
The pound was at 90.41 pence per euro, having slipped around 0.1% on the day by 0755 GMT.
Britain left the EU in January. A status-quo transition period ends on Dec. 31.
The negotiations on the terms of a future trading relationship are the primary driver of the pound, with economic data and fiscal policy seeing limited price action.
A Brexit trade deal is in both sides’ interests but can happen only if the EU respects British sovereignty over fisheries, British junior finance minister Stephen Barclay said on Friday. Fishing rights are a big sticking point.
“I wouldn’t be surprised if we do get more wobbles or a little bit more uncertainty in the coming weeks,” said Goldie. “If a deal’s there to be done, we’ll see that in the tail end of November, maybe even very early December, with just enough time to get the legalities sorted out.”
Reporting by Elizabeth Howcroft, Editing by William Maclean and Timothy Heritage