LONDON: The British pound climbed to a one-year high near $1.35 on Thursday as a US dollar selloff gathered momentum, but growing unease about a Brexit trade deal prompted investors to take protective action in the derivative markets. European Union negotiators have moved to "within millimetres" of the limits of their negotiating mandate at Brexit trade talks so it is up to London to compromise if a deal is to be reached, an EU diplomat said on Thursday.

But Prime Minister Boris Johnson's government pushed ahead with two bills that would breach the 2020 Brexit treaty despite protests from Brussels.

"In such a case, a no-deal Brexit may become an even more realistic outcome and the currency could fall off the cliff," said Charalambos Pissouros, a senior market analyst at JFD Group.

In late London trading, the pound gained 0.9% to $1.3494, its highest level since Dec. 12, 2019, thanks to broad-based dollar weakness. Versus the euro, the pound rose 0.4% to 90.22 pence.

But beneath the calm in the cash markets, derivative markets were signalling growing unease over the state of Brexit talks, with one-month risk reversals for the pound, a gauge of calls to puts for the currency, indicating rising numbers of bearish bets.