UPDATE 1-Sterling touches 2-week high on Brexit deal hopes
The European Union is preparing to back a compromise proposal on the Irish border to resolve the last major hurdle in negotiations, The Times reported on Monday.
The pound touched a two-week high of $1.3085 in early trade. Against the euro it rose 0.1 percent to 87.25 pence, close to a five-month high of 87.23 pence hit on Oct. 10.
But sterling trimmed gains to stand 0.2 percent up on the day at $1.3063 after trade minister Liam Fox said it was impossible to say if a deal could be reached this month or next.
While officials have made progress towards a deal in recent days, cabinet support for any exit agreement is essential for Prime Minister Theresa May, whose ruling Conservative Party is deeply divided over Brexit.
"It looks like we are getting closer to a deal but the support of the cabinet and parliament ...will decide whether sterling should be at 1.40 or 1.20," said Alvin Tan, currency strategist at Societe Generale in London.
Hopes of a deal have lifted the pound in recent days. It has risen 3 percent versus the dollar this month.
Some unwinding of short positions has also helped sterling. While net shorts have shrunk slightly from more than two-year highs in September, they remain near historical highs. (Reporting by Saikat Chatterjee; Editing by John Stonestreet)
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