Sterling rallies after EU's Barnier says UK Brexit deal 80-85 pct agreed

LONDON: Sterling rose half a percent to trade above $1.32 on Wednesday after European Union Brexit negotiator Michel Barnier signalled progress on a deal with Britain over its withdrawal from the bloc, as well as on the crucial Irish border question.

Hopes are building that a Brexit deal can be reached before an EU summit on Oct. 18 and sterling is benefiting as some investors unwind short bets on the currency.

Barnier said 80-85 percent of the withdrawal deal was agreed.

He also said the European Union wanted to carry out Irish border checks after Brexit "in the least intrusive way possible". The Irish border has been a key sticking point in Brexit talks.

The pound rose to $1.3210, a fresh 3-1/2 month high and strengthened 0.2 percent versus the euro to trade at 87.31 pence

"The pound has gained strength ... A deal will mean companies can finally start to plan ahead. This should boost consumer spending, corporate profits and economic growth," said Miles Eakers, chief market analyst at FX and payments specialist Centtrip.

British Prime Minister Theresa May will discuss Brexit with her cabinet of senior ministers at their regular Tuesday meeting next week before she heads to Brussels for the EU summit.

Some senior British ministers will also meet to be updated on the progress of Brexit negotiations on Thursday, the BBC's political editor said, adding that not all the cabinet would be involved.

Britain's ITV News reported late on Tuesday that the two sides had made progress in negotiations over an Irish border backstop.

"We've been here before (with Brexit hopes) but this pound move might have a little further to run, especially against the Australian and New Zealand dollars," Chris Turner, head of foreign exchange strategy at ING, said in a note to clients.

The Times newspaper reported that around 30 to 40 lawmakers from the opposition Labour Party would be prepared to back a Brexit deal that May is trying to strike with the EU, although Labour later played that down, suggesting "we should take all that with a pinch of salt".

The British economy's summer surge turned out to be stronger than expected as warm weather spurred consumer spending and housebuilding, official data showed on Wednesday.

The data is likely to reassure the Bank of England about the economy's momentum as Brexit approaches in March but it did not move the pound.