LONDON: Britain's pound hit an 11-day high in a volatile day of trading on Friday, benefiting from a dollar hit by weak inflation data, having earlier skidded as Germany told Britain "time is running out" to get the deal it wants on Brexit.
Sterling has been on a rollercoaster ride in the past two weeks due to political worries in Britain and an uncertain future for negotiations on leaving the European Union. But after suffering its worst week in a year, it has this week posted its strongest week of gains in four against the dollar.
The pound dropped almost half a cent against the dollar in a minute in morning trade in London, after a German government spokesperson warned "time is running out" for Britain to negotiate the deal it wants.
By 1242 GMT, it had reversed those losses and was trading up 0.4 percent on the day at $1.3323, its strongest since Oct. 2, after data showed underlying US inflation remained muted, knocking the greenback.
It had already recovered some ground after a spokeswoman for British Prime Minister Theresa May said she would have "more to say" on the Brexit financial settlement at next week's European Union summit.
"The pound's whipsaw price action...is indicative of the currency's somewhat inexplicable sensitivity to Brexit-related headlines," said Viraj Patel, an FX strategist at ING.
Market-watchers are warning that the outlook remains fragile due to worries about the future of Brexit negotiations, as well as infighting in the Conservative government.
"There's a lot that can go wrong and it's not taking into account what's going on in UK politics," said Adam Cole, head of FX strategy at RBC, who is advising to sell into the rallies.
Commerzbank agreed. "The current sterling levels are based on the hope that everything will be ok in the end," its analysts wrote in a note. "However, until this reliably emerges there is a considerable risk of the pound collapsing."
The pound tumbled to as low as $1.3122 on Thursday after the EU's chief Brexit negotiator Michel Barnier told reporters that talks around Britain's divorce payment had hit an "impasse", but shot up after a report later that day that the European Union could offer a two-year transitional Brexit deal.
Against the euro, sterling strengthened to a 9-day high of 88.50 pence and was on track for its best week in four.
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