LONDON: The British pound inched higher on Wednesday, lifted by broad-based dollar weakness and rising hopes of a trade deal with the European Union.

Sterling was up 0.5pc in early trade at $1.2929 against the dollar, before giving up some of those gains to trade 0.2pc higher at $1.2890 by 0924 GMT. It was fractionally lower versus the euro at 91.23 pence.

The pound's move was largely a reflection of the dollar's performance after US President Donald Trump tweeted he was breaking off talks on a new round of stimulus, said Lee Hardman, currency analyst at MUFG.

Trump's tweet triggered a sell off in risk assets, boosting demand for the safe heaven dollar.

"That momentum for the dollar hasn't continued," he added.

Traders were also upbeat on sterling after Reuters reported on Tuesday that Britain and the European Union were moving "closer and closer to a deal".

"It is all about the UK-EU trade negotiations headline news," wrote ING analysts in a note to clients.

Optimism that Britain and the EU could reach an agreement on their future trade relationships has been growing this week, with most analysts expecting the two parts to reach at least a "skinny" deal before the Brexit transition ends in December.