March 6, 2020 / 9:05 AM / in a month

Sterling gains from Barnier comments, weaker dollar

* Graphic: World FX rates in 2020

* Graphic: Trade-weighted sterling since Brexit vote

By Olga Cotaga

LONDON, March 6 (Reuters) - Sterling extended gains against a broadly weaker dollar on Friday, boosted by comments by the European Union’s Brexit chief negotiator that a trade deal between Britain and the bloc and was still possible this year.

Against the dollar, sterling was on course for its best week since mid-February.

The pound also remained underpinned by Thursday’s Bank of England decision to not cut interest rates for now in response to the coronavirus epidemic.

Sterling was trading up 0.2% at $1.2982, a nine-day high. Against the euro, sterling was down 0.2% at 86.88 pence .

The UK and EU concluded their first round of trade talks following Brexit this week and are due to reconvene on March 18.

EU negotiator Michel Barnier said the two had “very serious” differences about their future relationship but a deal remained possible.

The main driver for the pound in the meantime is going to be the coronavirus, so “it is certainly possible that Brexit risk remains in the background as (a subsidiary ) pound driver for longer now,” said Lee Hardman, currency analyst at MUFG.

On top of that, “there has already been speculation that coronavirus-related disruption could prompt policymakers to alter the timeline for negotiations,” Hardman said.

“Market participants will for now focus on the June deadline set recently by the UK government by which they expect to have a ‘broad outline’ of a trade deal with the aim to finalise by September,” he added.

Market gauges for implied volatility in sterling were much lower than towards the end of last year, when heightened worried of a no-deal Brexit weighed on traders’ minds.

Reporting by Olga Cotaga; editing by John Stonestreet

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