Sterling boosted by drop in dollar, but Brexit negotiations weigh
The British pound rose to a near two-week high on Tuesday after the dollar fell following comments from U.S. President Donald Trump that he was unhappy with the Federal Reserve for raising interest rates.
Sterling has recovered in recent sessions from a 14-month low, rising almost two cents from $1.2662 plumbed last week.
But with the British Brexit minister headed to Brussels for the start of a series of talks aimed at averting the UK crashing out of the European Union without a trade deal, investors remain nervous, limiting potential gains for the pound.
Underlining the uphill task that remains if the two sides are to agree, the UK's trade minister, Liam Fox, said on Tuesday the European Union risked damaging its standing in the world if it pursued a Brexit that put its own "ideological purity" ahead of the needs of its citizens.
Investors and companies have grown increasingly concerned Britain will not be able to secure an arrangement with its largest trading partner before it is scheduled to leave the EU at the end of March 2019.
"That poor sentiment and substantial Brexit risk premium is unlikely to change and could even get worse over the short-term given the UK government is set to release 84 no-deal preparation notices," MUFG analysts said in a note.
"With only eight weeks until we reach the self-imposed deadline for a withdrawal deal to be finalised, downside risks will persist."
The pound rose to as high as $1.2846 on Tuesday before settling up 0.2 percent on the day at $1.2823, led by investors selling the U.S. currency overnight.
The British currency struggled against a stronger euro, falling 0.1 percent to 89.84 pence per euro.
CMC Markets analyst David Madden noted that the pound had been in a downtrend against the dollar since April, adding: "If the bearish move continues it could target $1.2590. Pullbacks might run into resistance in the $1.2957 to $1.3000 region."