Sterling fell against the euro on Monday, although not by much, and most analysts say they now expect Britain and the European Union to meet the transition deadline and soon conclude a Brexit deal.
Versus the U.S. dollar, the pound was in neutral territory.
British Prime Minister Boris Johnson and the head of the EU’s executive, Ursula von der Leyen, agreed in a phone call on Saturday to step up Brexit talks to close “significant gaps” barring a new trade partnership.
Both sides said they have made some progress but not yielded a breakthrough.
Johnson does not want the Brexit transition to end without a new trade deal in place, he said on Sunday, but he believes Britain could live with such an outcome.
“While we have frequently cautioned that the more uncertain global backdrop has made it harder to express views on the Brexit process in the currency this year, we are encouraged by the pound’s increasingly idiosyncratic price action as the negotiation deadlines draw near,” Goldman Sachs analysts wrote in a note to clients.
Goldman Sachs saw the pound strengthening to 87 pence against the euro and said “investors with a stronger conviction that risk conditions will improve into year-end should consider expressing the view in cable (sterling/dollar) to also benefit from likely dollar depreciation.”
The pound was last trading flat versus the dollar at $1.2939 and down 0.2% against the euro at 90.74 pence.
Leveraged funds, however, were still shorting the pound, adding to their positions in the week to Aug. 29 and taking the amount of shorts to a two-month high, latest data from the Commodity Futures Trading Commission showed.
It has risen 3.4% versus the dollar in the past three months. Against the common currency, the gains were marginal.
Britain is battling with rising cases of the new coronavirus infections. On Sunday, it recorded a record 22,961 cases, but that was caused by a glitch in the system, which has since been fixed.
The government launched a programme on Monday aimed at helping those left jobless by the COVID-19 pandemic to get back into work.
Traders will be looking for August gross domestic product on Friday. Before that are construction PMI on Tuesday and industrial production on Friday.
Reporting by Olga Cotaga, editing by Larry Kin