Sterling Skids on Brexit Deal Doubts, Yen Gains

Investing.com - The British pound weakened on Wednesday, pulling back from its highest level against the U.S. dollar in almost five months as hopes for a breakthrough in Brexit talks dimmed, while fresh trade uncertainty boosted the safe haven yen.

Sterling was down 0.6% to 1.2699 by 03:58 AM ET 07:58 GMT), pulling back from a five-month high of 1.2800 reached on Tuesday.

The euro gained 0.7% against the pound to trade at 0.8683 and was little changed against the dollar.

Optimism that Britain is nearing a deal to leave the European Union faded ahead of a make-or-break summit between the two sides on Thursday and Friday.

The EU will determine whether a deal is fit to be put to Thursday's leaders' summit for consideration, but even then there is a question whether Britain's minority government could win approval for any deal from the country's divided parliament ahead of the Oct. 31 Brexit deadline.

Sterling had rallied on Tuesday after officials involved in Britain's negotiations with the EU said differences between the two sides had been narrowed significantly.

The safe haven yen was boosted after Beijing criticized new U.S. legislation seen as supportive of pro-democracy protests in Hong Kong.

Fresh signs of strains on relations between the U.S. and China make a resolution to their protracted trade war less likely.

Reports of a "Phase 1" trade deal between the Washington and Beijing last week initially cheered markets but the lack of details around the agreement has since dampened expectations.

The U.S. dollar index that measures the greenback against a basket of six currencies was a touch higher at 98.04.

--Reuters contributed to this report

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