Sterling rises 0.6% as quarter-end flows push traders to buy

The UK Internal Market Bill now passes to the House of Lords for debate. "A deal conquers all in regards to the Brexit negotiations," said Neil Jones, head of European hedge fund sales at Mizuho.

Sterling rallied in late London trading on Wednesday as market makers adjusted their positions on the last day of the month and the third quarter.

The pound, which had earlier weakened against both the U.S. dollar and the euro, changed course less than an hour before the 1600 GMT "fixing" time, when traders at major banks give their final reading of the currency. It was last up 0.6% at $1.2943 and at 90.79 pence versus the euro.

"It's month end, it's quarter end, and you're in very dangerous territory when you're trying to find a fundamental explanation to spot moves in the afternoon of that final trading session," said Derek Halpenny, head of research at MUFG. Still, he said that in the past couple of days short-term traders had positioned themselves for a stronger U.S. dollar and given that those expectations had not materialised they were likely to reverse the positions, pushing the pound up.

Sterling had edged lower at the start of the day after Britain's lower house of parliament approved legislation on Tuesday giving ministers the power to break its divorce agreement with the European Union. The UK Internal Market Bill now passes to the House of Lords for debate.

"A deal conquers all in regards to the Brexit negotiations," said Neil Jones, head of European hedge fund sales at Mizuho. "The Internal Market Bill passing through the House of Commons was business as expected. So far, it has gone according to market expectations. What has put the bill on the side temporarily is the expectations of a deal between the EU and the UK."

When the Internal Market Bill has initially proposed it coincided with high expectations of a no-deal Brexit. Now those fears have diminished, so have the worries around the harmful effects of the bill on the Withdrawal Agreement. The government says if a deal can be reached on the Irish border, the powers in the bill may not be needed.

A resurgence in COVID-19 cases also drew attention away from the bill. "Sometimes what was previously a major factor falls to second stage," said Jones.

British Prime Minister Boris Johnson told his cabinet team that the impact of new coronavirus restrictions would not be felt immediately and that everyone should follow the rules. Brexit negotiations continue this week in what is expected to be the last leg of talks before an EU summit next month.

Meanwhile, Norway and Britain have reached a bilateral agreement on fisheries, the Norwegian government said.

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