Reuters – Sterling gave up earlier gains and turned lower on the session on Friday as investors took profits after a sharp rally in recent days.
A breakthrough in Brexit negotiations sent sterling rallying to a six-month high against the euro earlier in the day on investor relief that the talks will move forward to a trade and transition arrangement next week at a key EU summit.
But with the economy still facing headwinds, traders were quick to take profits on sterling, especially against the dollar and the euro, pushing it down the day.
“I think we’ve seen a classic case of the rumour being bought and the fact sold, with sterling having rallied early last week in anticipation of a deal being close,” said OANDA analyst Craig Erlam.
The European Commission said enough progress had been made after the two sides worked through the night to reach a deal over the status of the Irish border, which had scuppered an earlier attempt to clinch a deal on Monday.
“We could see more upside in the pound in the coming months but as it was before, the road ahead is bumpy and that will be reflected in the currency markets.”
Sterling strengthened to 86.90 pence per euro on the news, its strongest since June 9, before giving up all its gains to trade down on the day at 87.45 pence. It had rallied more than 3 percent in the last eight days.
On a trade-weighted basis, the pound climbed to its strongest level since May. Against the Swiss franc, it has now recovered almost all the losses suffered since the vote for Brexit 18 months ago, trading at its strongest since June 24, 2016.
But RBC strategists said Brexit negotiations aside, the economy remained in a fragile state with the Bank of England’s November hike seen widely as a “one and done” thing.