Pound hits one-week high as Brexit talks begin

Sterling hit a one-week high on Tuesday despite a stronger dollar as three days of negotiations on Britain's trade agreement with the European Union began in Brussels. "In negotiations and given the political capital that (Prime Minister Boris) Johnson is losing in the fight against COVID we see the balance as having shifted more in favour of a deal." Sterling was trading 0.4% higher at $1.2878.

Sterling hit a one-week high on Tuesday despite a stronger dollar as three days of negotiations on Britain's trade agreement with the European Union began in Brussels. Talks on a joint legal text of trade agreement, which will also cover energy links and transport, will last until Friday morning.

"This week is a very, very important week for the pound as we slowly grind toward the day of true Brexit," according to MUFG analysts. "In negotiations and given the political capital that (Prime Minister Boris) Johnson is losing in the fight against COVID we see the balance as having shifted more in favour of a deal."

Sterling was trading 0.4% higher at $1.2878. In contrast, most other currencies, including the euro and the yen, were weaker against the dollar. It was also 0.2% higher versus the euro at 90.71 pence. Bank of England Deputy Governor Dave Ramsden said on Monday he thought the floor for the central bank's key interest rate was 0.1%, but the BoE could consider going below zero to help the economy through its coronavirus crisis, lifting the pound

"Ramsden’s comments may have prompted some GBP-traders to scale back their negative-rate bets, and that’s why the pound rallied," said a note from JFD Group. Money market futures contracts expiring in February 2021 were back to zero after briefly pricing in negative interest rates last week.

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