The pound continued to trade close to its highest levels against the dollar in around two months of Friday, spurred by hopes that a deal on Brexit will be struck at a summit later in December.
In morning trading, sterling was changing hands at around $1.3491 and around €1.1322, having on Thursday hit its highest level against the dollar since the end of September – a move that was accentuated by weakness in the US currency.
Earlier this week, media reports surfaced according to which UK and EU negotiators had agreed the terms of a Brexit financial settlement. Separately, reports emerged that negotiators are close to a breakthrough on the deadlocked issue of the Irish border.
A European Council meeting is due to take place on 14 December, at which the future of talks will be decided.
The pound has endured a bumpy rise over recent months. It remains more than 10 per cent lower against the dollar and around 13 per cent lower against the euro since the June 2016 referendum on EU membership, but has risen close to 2 per cent since the start of November.
Over the longer term, though, analysts and forecasters are still hesitant to forecast a sustainable recovery for the currency.
Strategist at UniCredit wrote in a note to clients on Friday that further progress in negotiations could indeed spell more strength for sterling, but that the situation remains volatile.
“If negotiations reach a gridlock then the enthusiasm will quickly turn to disappointment,” they said, forecasting that in that scenario, sterling could quickly return to the $1.31-$1.30 area.