British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna

Sterling rises 0.5% vs dollar as EU says N.Ireland deal possible

By Joice Alves

LONDON (Reuters) – Sterling rose on Friday after the European Union said the bloc is committed to find a practical solution with Britain over a Northern Ireland trade dispute.

Sterling has been under renewed pressure this week amid worries that disagreements between Britain and the EU could trigger major trade disruption, hitting the British economy, which is already lagging that of other rich nations.

The European Commission’s Maros Sefcovic said on Friday there had been a welcome change in tone from British Brexit minister David Frost in talks, but serious headway was still needed next week.

After he spoke, sterling jumped 0.5% versus the dollar. At 1538 GMT, it was 0.3% higher at $1.3404. The pound was still set for its third consecutive week of declines versus the dollar, having fallen to its lowest level since December of $1.3354 overnight.

Against the euro, sterling rose 0.3% to 85.39 pence and was set for weekly gains, after tumbling versus the single currency in the previous week.

“Today’s move in the pound is reflective of easing Brexit tensions and the removal of downside risk to an already flagging growth narrative,” Simon Harvey, a currency analyst at Monex Europe, said.

Last week, the Bank of England triggered a sterling sell-off when it left its main interest rate unchanged at 0.1% in its November policy meeting, having previously signalled it could raise it.

In the meantime, a surge in U.S. inflation this week boosted the greenback amid bets that the Federal Reserve would hike interest rates faster than expected.

Shaun Osborne, chief FX strategist at Scotiabank, said sterling found some support on Friday as investors were buying the sterling dip.

“GBP bargain-hunting emerges despite ongoing BoE uncertainty,” Osborne said.

Economists polled by Reuters expected the BoE to be the first major central bank to raise interest rates, in December move or early next year. Markets have priced in a December rise.

(Reporting by Joice Alves, editing by Andrei Khalip and Andrew Heavens)