The pound was on track to record its biggest weekly gain since October on Friday, spurred by hopes that a deal on Brexit will be struck at a December summit.
Late in the day, sterling was changing hands at just over $1.35 and around €1.133, having on Thursday hit its highest level against the dollar since the end of September – a move that was accentuated by weakness in the US currency.
On Friday it gave up some of those gains, but it remained well over 1 per cent higher on the week against the dollar – marking its best weekly performance in seven weeks.
Earlier in the week, media reports surfaced according to which UK and EU negotiators had agreed the terms of a Brexit financial settlement. Separately, reports emerged that negotiators were close to a breakthrough on the issue of the Irish border.
A European Council meeting is due to take place on 14 December, at which the future of talks will be decided.
The pound has endured a bumpy ride in recent months. It remains more than 10 per cent lower against the dollar and around 13 per cent lower against the euro since the June 2016 referendum on EU membership, but has appreciated close to 2 per cent since the start of November.
Despite recent resilience though, analysts and forecasters are still hesitant to predict a sustainable recovery for the currency any time soon.
“Time will tell if the pound can strengthen on positive sentiment around Brexit negotiations, or if it will be weighed down by further uncertainty,” said William Anderson Jones, head of UK corporate dealing at RationalFX.
Strategist at UniCredit wrote in a note to clients that further progress in negotiations could indeed spell more strength for sterling, but that the situation remains highly volatile.
“If negotiations reach a gridlock then the enthusiasm will quickly turn to disappointment,” they said. In that scenario, they said, sterling could quickly return to the $1.31-$1.30 area.
