Sterling rose 0.36% against the U.S. dollar to $1.1982, after slipping to an almost two month low against the greenback. Sterling is set for its first monthly decline against the dollar since September.
The pound edged 0.1% higher versus the euro to 88.21 pence.
"It seems the two sides are set for a landing zone that would allow more flexible trade flows, namely an easing on checks on goods that are just going to NI from the UK," said Jeremy Stretch, head of G10 FX strategy at CIBC. "A deal is a mild GBP positive".
ING strategists agreed, saying the key focus for sterling would remain interest rate hike expectations.
FOCUS ON RATES Money markets are pricing in a 96% chance of a 25 basis point (bps) Bank of England (BoE) hike in March, with rates peaking in August at 4.75%, from 4.00% now.
They are also pricing in a 57% chance of a 50 bps European Central Bank (ECB) rate increase in March and a 43% chance of a 75 bps move. As the ECB could increase rates more than the BoE, the euro could find support against sterling. On the other hand, a strengthening dollar could send sterling to $1.1850 this week, ING said in a note.
J.P. Morgan said it expected the BoE to raise interest rates
by a further 25 bps in June as more monetary policy tightening
may be needed to tame underlying inflation.
Last week, a preliminary "flash" reading of the S&P
Global/CIPS UK Composite Purchasing Managers' Index (PMI) showed
a surprise return to growth by businesses in February, raising
the likelihood of more interest rate hikes.
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Graphic: World FX rates in 2022 Graphic: Trade-weighted sterling since Brexit vote ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Joice Alves
Editing by Mark Potter)
