Brexit talks doubt, rising COVID cases dent pound's early gains

LONDON (Reuters) - Concerns that the latest Brexit talks were proving less promising than hoped and fears of new COVID-19 restrictions erased some of sterling’s early gains on Wednesday.

FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/Illustration

Sterling rose 0.5% in early trade to $1.2929 against the dollar, before giving up some of those gains to trade up 0.1% at $1.2880 by 1446 GMT versus a weaker dollar..

Against the single currency, the pound touched its lowest level since Sept. 25 at 91.61 pence, and was last trading down 0.2% on the day at 91.30 pence.

Britain’s chief Brexit negotiator David Frost and minister Michael Gove reiterated that Britain wanted a trade agreement with the European Union, but Gove said the government is stepping up preparations for a no-deal scenario.

Prime Minister Boris Johnson meanwhile told parliament Britain would take back “full control” from the European Union on Jan. 1 when a transition period ends.

“The market is quite nervous about the news coming out of Brexit negotiations,” said Jane Foley, head of FX strategy at Rabobank, adding that fishing rights were the sticking point.

Ireland’s Foreign Minister Simon Coveney also warned that fishing rights remained a big obstacle that the British government should not underestimate.

Optimism that Britain and the EU could reach an agreement on their future trade relationships had grown in recent weeks, helping sterling rise to above $1.30 on Tuesday, the highest level since September 16.

Most analysts still expect them to reach some deal.

Alongside Brexit, traders are also watching the latest coronavirus developments in Britain, said Lee Hardman, a currency analyst at MUFG in London.

Britain reported more than 15,000 new infections on Tuesday, but Johnson said his government’s approach was still the right one.

The sharp increase in cases in Britain adds to “the risk that we could see further lockdown measures put back in place,” Hardman said.

(Graphic: Pound snapshot )

Reporting by Joice Alves; Editing by Catherine Evans