Sterling slips on dollar rebound, growing Brexit nerves

The pound sterling fell on Friday as the dollar rebounded across the board but it is still set for its biggest weekly rise in a month as investors became cautiously hopeful that the UK would strike a transition deal at a summit next week for its EU exit.

The dollar edged higher against a basket of currencies and is set for its fourth consecutive week of gains.

While sticking points remain, such as a deadlock over the Irish border issue and with recent headlines from senior officials highlighting remaining differences, businesses have become more optimistic that EU leaders can endorse a transition deal during a Brussels summit next Friday.

“A transition deal is not a game changer for the currency markets but what will be a major driver is if we get an open-ended transition deal which will take away the nervousness of a hard Brexit,” said Morten Helt, a currency strategist at Danske Bank.

On Friday, sterling was up by a quarter of a percent at $1.3977. For the week, it gained one percent, its biggest rise in a month. It hit $1.4346 on January 25, its highest level against the dollar since the UK voted to leave the EU in June 2016.

Though it has pulled back modestly from those highs, it remains near the top of its trading range of between $1.20 and $1.43, buoyed by the hopes of an eventual Brexit transition deal and by a generally weaker US currency.

In other major developments next week, the Bank of England is set to announce a policy decision which may shed some light on the future path of interest rates.