LONDON, Dec 1 — The pound crossed US$1.34 for the first time in three months today, and also edged up versus the euro, as market participants remained optimistic that a Brexit deal could be reached this week, despite a lack of tangible progress in negotiations.

The UK left the European Union in January and is currently in a status quo transition period that will end on December 31. Both sides are currently in trade talks to reach an agreement on the UK’s future relationship with the bloc.

Michael Gove, a senior British minister, said today that the talks were still stuck on the issues of fishing, governance rules and dispute resolution because the EU is asking too much.

The Irish prime minister said that he was hopeful that a deal could be reached this week. But he had also expressed hope at the beginning of last week that the outline of a deal would be agreed within days.

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The pound rose, pushed up above US$1.34 by a weaker dollar. At 0841 GMT it was at a three-month high of US$1.3403, up 0.6 per cent on the day.

Versus the euro — which analysts say is a better gauge of sentiment about Brexit — it was up 0.1 per cent at 89.40 pence per euro .

“The waiting game for GBP continues, but we can expect more days of contradicting headlines driving intraday oscillations in GBP,” wrote ING strategists, in a note to clients.

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“As time goes on, we should see the size of such swings increase as markets attribute a bigger weight to any remarks by both parties’ officials,” they said.

Speculators’ have had a net short position on the pound versus the dollar since September, according to weekly CFTC futures data.

Euro-sterling volatility gauges with a one-month maturity rose to a six-day high, suggesting that investors anticipate increased price swings until the transition period ends .

“While the conclusion of a limited UK/EU FTA (free trade agreement) is not fully reflected in the current level of the GBP, we are keeping our 1-3M profile for GBPUSD flat at 1.34, followed by a gradual move higher over the course of 2021,” wrote Stephen Gallo, European head of FX strategy at BMO Capital Markets.

Gallo said that the UK is likely to face “adjustment pressures” from the double whammy of Covid-19 and Brexit, regardless of whether or not there is a limited trade deal, and that the UK’s twin fiscal and current account deficits will limit the upside for the pound.

Elsewhere, UK PMI data was due at 0930 GMT. — Reuters