Sterling rises to three-week highs on news of Brexit talks dinner
- I think there is a little bit of optimism today for the dinner that is taking place tonight at 10 Downing Street.
- "The market is looking at what is going to give a boost in the next six months... but I think it's mostly flow driven and volumes that are not really heavy."
LONDON: Sterling rose to three-week highs on Tuesday, strengthening almost 1% against the euro, on optimism that British and EU trade negotiators could find common ground at a dinner planned for later in the day.
A spokesman for Prime Minister Boris Johnson said chief negotiators for Britain and the European Union would dine in Number 10 Downing Street on Tuesday evening for informal talks on the trading relationship following the UK's exit from the bloc.
"I think there is a little bit of optimism today for the dinner that is taking place tonight at 10 Downing Street," said Kenneth Broux, an analyst at Societe Generale.
"The market is looking at what is going to give a boost in the next six months... but I think it's mostly flow driven and volumes that are not really heavy."
Against the dollar, the pound rose to as high as $1.2579, approaching the June 18 high of $1.2588. Against the euro, it firmed 0.9% to 89.745 pence.
Investors are also awaiting details of the government's plans to support the British economy, with Chancellor Rishi Sunak due to unveil more spending measures on Wednesday. That would be on top of Prime Minister Johnson's announcement a week ago of 5 billion pounds ($6.29 billion) in infrastructure investment.
Sunak is considering handing vouchers of 500 pounds for adults and 250 pounds for children, to spend in the hardest hit sectors, the Guardian newspaper reported.
"Prime Minister Johnson's so-called New Deal for infrastructure spending was deemed insufficient and so UK business interests are urging Sunak to be more aggressive," said Brown Brothers Harriman analysts in a note.
Some investors remain cautious. Positioning data showed hedge funds increasing bearish bets on the British pound, as Brexit negotiations have so far failed to make much progress.
Nomura analysts are among those, targeting the pound to slip to 92 pence versus the euro.
"The UK's real yield story remains a drag, the UK's reopening of bars and restaurants this weekend may be met by local lockdowns in the weeks to come given (a) higher COVID incidence rate," they noted.
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