Sterling climbs against weaker dollar, Brexit talks help

Against a weakening dollar, the pound touched $1.2608

  
British Pound Sterling banknotes are seen in a box at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017.

British Pound Sterling banknotes are seen in a box at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017.

REUTERS/Leonhard Foeger

LONDON- Sterling rose on Wednesday to a one-month high against a broadly weaker dollar, but Brexit risks still weighed on the pound.

The dollar fell against most currencies as the prospects for more government stimulus and hopes for an economic recovery encouraged investors to buy riskier assets. 

Brexit-related risks capped sterling gains as Britain and the European Union launched a fourth round of virtual post-Brexit talks this week to try to secure a trade deal.

The Bank of England said on Wednesday it has advised banks to prepare for a no-deal possibility. 

ING analysts said in a note to clients that the pound rally could be short-lived as Brexit continues to be a "major headache for the pound".

"GBP has enjoyed some temporary out-performance on reports of more flexibility in the UK Brexit position, but we doubt GBP can hold onto gains," they said.

Against a weakening dollar, the pound touched $1.2608 around 0700 GMT, its highest since April 30. It was last at $1.2575, up 0.2% on the day. 

Versus the euro, sterling lost 0.1% to 89.09 as the pound is still weighed down by many factors, including Brexit-related risks, speculation about negative rates and one of the world's worst COVID-19 death tolls.

Data showed Britain's economy was still shrinking but the pace of the decline eased in May and some companies benefited from the easing of coronavirus lockdowns around the world.

New rules designed to ease the coronavirus lockdown in England came into force on Monday.

(Editing by Jane Merriman and Angus MacSwan)

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