LONDON: Sterling slipped back below $1.320 on Monday, even as global risk appetite started the week on a high, as pound-traders focused on Brexit negotiations that resumed in Brussels. The mood in markets was lifted by stronger-than-expected Chinese factory output and news that Moderna Inc said its experimental vaccine was 94.5% effective in preventing Covid-19. World stocks hit a record high.
But sterling dipped against both dollar and euro as investors remained focused on Brexit.
ING strategists, in a note to clients, said that while prospects for a deal looked slightly brighter, the core issues remained largely unresolved and time to reach an agreement was running out.
"While we see officials suggesting more than one week may still be needed, the technical time for ratification in the EU and UK is dangerously shrinking," they added. "In light of this, we could see both parts rushing into a deal already this week."
At 1605 GMT, the pound was down 0.1% on the day at $1.3190. Versus the euro, it was down around 0.2% at 89.835 pence per euro.
Britain officially left the EU in January but its status-quo transition period, staying within the EU customs union and single market, ends on Dec. 31. Both sides are trying to reach a deal before that to govern nearly 1 trillion dollars in annual trade.
A senior EU official said on Monday it was getting "terribly late" to seal a new trade deal with Britain.
Ireland's foreign minister said that there would be trouble if a breakthrough was not made in the next week to 10 days, later adding that talks could last another two weeks.
Britain's health secretary Matt Hancock said that the UK's red lines in the negotiations had not changed, while Prime Minister Boris Johnson said in a statement that Britain will prosper even without a deal.
Richard Perry, senior market analyst at Hantec, said he expected a risk-positive tone in markets to support sterling, and that market participants were optimistic about the chances of a deal.
"We're fairly positive. There's no real reason at the moment to think that the two sides are not moving towards an agreement," he said. "It seems as though the market is positioning for a deal at some stage."
A survey showed that nearly half of small and medium-sized British manufacturers have no idea how the end of the transition period will affect their business.
Elsewhere, Prime Minister Boris Johnson said he was self-isolating after coming into contact with someone with Covid-19. He said in a video tweet that he was in good health.
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