LONDON  - Sterling climbed above $1.25 to its highest in a month against the dollar on Tuesday, as signs Britain might be willing to compromise on sticking points in a fresh round of Brexit negotiations with the European Union provided support.

Britain is expected to indicate flexibility over fisheries and trade rules if the European Union agrees to lessen its "maximalist" demands regarding regulatory alignment and fishing access, the Times newspaper reported on Tuesday, as a new round of talks kicks off. 

Britain has until July 1 to ask for an extension to the current transition period, which ends in December.

By 0743 GMT, the pound was trading 0.2% higher to the dollar at $1.2518, after hitting its highest since May 1 in early deals.

Against the euro, it was up 0.3% at 88.86 pence.

"Despite what is likely to be a period of high Brexit headline risks for UK assets in the coming weeks and months, a report that the UK may be willing to compromise in upcoming Brexit negotiations - along with broad-based US dollar weakness due to the idiosyncratic risk posed by nationwide U.S. protests - is keeping the pound underpinned against the dollar," said Viraj Patel, FX and global macro strategist at Arkera.

"The 100-day moving average for sterling-dollar is likely to provide some resistance as investors will want stronger fundamental conviction around the pound rally - and this may need better UK macro data following the lockdown easing or more concrete evidence of reduced Brexit risks."

Weekly positioning data for the week ended May 26 showed the market's net short position on the pound increased for the twelfth week running. The last time investors were this bearish on the pound was in the run-up to the December 2019 election.

(Reporting by Ritvik Carvalho; editing by Barbara Lewis) ((Ritvik.Carvalho@thomsonreuters.com; +44 2075429406; Reuters Messaging: ritvik.carvalho.thomsonreuters@reuters.net))