Brexit talks doubt, rising COVID cases dent pound's early gains

Britain's chief Brexit negotiator David Frost said that his team is working very hard to get a trade deal with the EU by October 15, but that date "is very close already". Alongside Brexit, traders are also watching the latest coronavirus developments in Britain, Lee Hardman, a currency analyst at MUFG in London, said.

Concerns among some investors that the latest Brexit talks were proving less promising than hoped and fears of new COVID-19 restrictions erased some of sterling's early gains on Wednesday.

Ireland's Foreign Minister Simon Coveney warned that fishing rights remained a big obstacle that the British government should not underestimate. Meanwhile in parliament, Prime Minister Boris Johnson said that Britain would take back "full control" from the European Union on Jan. 1 when a transition period ends.

"The market is quite nervous about the news coming out of Brexit negotiations," said Jane Foley, head of FX strategy at Rabobank, adding that fishing rights were the sticking point. Sterling was up 0.5% in early trade at $1.2929 against the dollar, before giving up some of those gains to trade up 0.1% at $1.2888 by 1332 GMT versus a weaker dollar..

Against the single currency, the pound touched its lowest level since September 25 at 91.61 pence, and was last trading down 0.3% on the day at 91.37 pence. Optimism that Britain and the EU could reach an agreement on their future trade relationships had grown in recent weeks, helping sterling rise to above $1.30 on Tuesday, the highest level since September 16.

Most analysts still expect them to reach some deal. Britain's chief Brexit negotiator David Frost said that his team is working very hard to get a trade deal with the EU by October 15, but that date "is very close already".

Alongside Brexit, traders are also watching the latest coronavirus developments in Britain, Lee Hardman, a currency analyst at MUFG in London, said. Britain reported more than 15,000 new infections on Tuesday, but Johnson said his government's approach was still the right one.

The sharp increase in cases in Britain adds to "the risk that we could see further lockdown measures put back in place," Hardman said.