LONDON (Reuters) – Sterling rallied on Thursday after a media report that Britain and the European Union had made progress on the Irish border issue, a key hurdle in agreeing a Brexit trade deal.
The pound, already up on the back of dollar weakness following disappointing U.S. inflation data, extended its gains to hit as high as $1.3124, its strongest since Aug. 2 after the Bloomberg report, analysts said.
Sterling was up at around $1.3080 before the report.
Viraj Patel, an analyst at ING, said that if confirmed, agreement over the Irish border question would “effectively wrap up the withdrawal agreement and take a no-deal Brexit off the table.”
The EU has made a so-called “backstop” proposal to guarantee an open UK-EU land border in Ireland a condition for any divorce deal before Britain leaves the bloc on March 29, 2019.
In testimony to British lawmakers dated Sept. 3, Barnier said a backstop on Ireland was crucial but added that the EU remained open to finding other solutions.
Currency traders caution that after a recent spell of strength in the pound, investors now want to see concrete progress towards a Brexit deal rather than headlines before pushing sterling much higher.
The pound was 0.1 percent lower against a broadly stronger euro at 89.185 pence.