The pound strengthened to a three-week high as comments by French and German leaders stoked optimism about a Brexit deal.
Gilts fell for a second day after German Chancellor Angela Merkel indicated that it may be possible to find a solution to the Brexit impasse within the next month. French leader Emmanuel Macron agreed, though cautioned it would have to be done without straying too far from the basis of the existing accord.
“Not much is needed in this market to trigger material position squaring and positioning where it stands continues to argue against selling the pound,” said Manuel Oliveri, a strategist at Credit Agricole SA. “More upside is likely.”
The pound gained 1.1% to $1.2258, the highest since July 29. The currency strengthened almost 1% to 90.53 pence per euro.