LONDON- The pound held at a two-week high on Wednesday, maintaining some momentum after tentative signs of progress in Brexit talks between the British government and the main opposition party.
Markets in Asia and in much of Europe were closed for holiday, limiting activity in currency trading and keeping many investors on the sidelines.
Sterling has stuck within a range of $1.28-1.30 since Britain pushed its scheduled departure from the European Union back from March until Oct. 31.
But it hit a two-week high of $1.3049 on Tuesday after several British newspapers reported that Prime Minister Theresa May wants talks with Labour on reaching a Brexit consensus to conclude by the middle of next week.
The next turning point for sterling could be a Bank of England policy meeting on Thursday though markets do not expect the BOE to raise interest rates until early 2020 when there could be more clarity on Brexit.
"Given that firms will continue their preparation for Brexit and growth remains subdued, the BoE should remain on hold tomorrow. EUR/GBP will hover around the 86 pence level today ahead of the rate decision," said Petr Krpata, an FX strategist at ING in London.
The pound rose 0.2 percent to $1.3070 and was flat against the euro at 85.92 pence.
With Japan out for a week of holidays, traders are worried the absence of Tokyo, one of the world's top five currency trading centres, might fuel some exaggerated moves in foreign exchange markets.
Overall volatility in the currency markets remained near five-year lows.
Despite the pound's gains against the dollar, net positions by hedge funds in sterling slipped back into negative territory, according to the latest data.
(Reporting by Tom Finn; Editing by Janet Lawrence) ((firstname.lastname@example.org; +44 2075427508 ; Reuters Messaging: email@example.com))