Sterling holds up at 2-1/2-year high on renewed Brexit trade deal hopes

British interior minister Priti Patel said the government would work flat out for a trade deal. The pound jumped above the $1.35 mark after European Commission President Ursula von der Leyen said on Wednesday there was now a "very narrow" path to agreement though success was not guaranteed.

Sterling rose on Thursday and was comfortably above $1.35 - at a 2-1/2-year high against a weaker dollar - as reports of progress in Brexit trade talks boosted appetite for the British currency.

With only days left to the end of a Brexit transition period on Dec. 31, Britain and the European Union are in the final stretch of talks to keep about 1 trillion dollars of annual trade free of tariffs and quotas. British interior minister Priti Patel said the government would work flat out for a trade deal.

The pound jumped above the $1.35 mark after European Commission President Ursula von der Leyen said on Wednesday there was now a "very narrow" path to agreement though success was not guaranteed. Sterling was at its highest level since May 2018 on Thursday, extending gains in early trade to $1.3578, up 0.5% against the dollar.

Against the euro, it gained 0.3% at 90.05 pence. The pound is benefiting from "an improvement in rhetoric from the UK and EU" on the chances of a Brexit trade deal this week, said Chris Turner, global head of markets at ING.

Prime Minister Boris Johnson said he hoped the EU would "see sense" and agree a deal that respected Britain's sovereignty. Analysts are also taking it as a positive sign for the pound that Britain's parliament will be on standby during its Christmas break, and could be recalled at short notice to legislate if a trade deal is reached.

Analysts do not expect The Bank of England to make any move at a meeting later on Thursday. "With the deal being neither concluded nor rejected, the BoE should adopt a wait and see approach today," Turner added in a note to clients.

(Editing by Timothy Heritage)