By Elizabeth Howcroft
LONDON, Oct 9 (Reuters) - The pound was steady against the U.S. dollar on Friday, brushing off worse than expected UK growth data as investors became more optimistic about a Brexit deal being reached ahead of a key European Council summit next week.
The pound has been volatile this week on contradictory headlines about how much progress has been made in Brexit negotiations. Both sides have said a deal is still possible.
"The last two weeks have seen some brutal whipsawed price action in sterling," said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets,
"There is going to be that ongoing susceptibility to Brexit headlines but the mood music still seems to be reasonably positive," he said, adding sterling could test the key $1.30 level again if the risk environment remained constructive.
At 1034 GMT, the pound was at $1.2937, little changed on the day and up less than 0.1% this week GBP=D3.
Versus the euro, it was down around 0.3% at 0.91195 EURGBP=D3, in a move which analysts said was driven by dollar weakness and euro-dollar strength.
The greenback was heading for a second week of losses as investors increased bets that Joe Biden would win the U.S. presidential election on Nov. 3 and offer fiscal stimulus afterwards.
"There’s obviously a reluctance of investors to push beyond $1.30 because there’s so much fog," said Kenneth Broux, FX strategist at Societe Generale.
"Unless we get positive news on Brexit we’re not going to have investors pile into long cable," he said.
Britain's GDP rose 2.1% in August - the slowest increase since the economy began to recover in May from its record slump. Much of what growth occurred was down to the government's one-off restaurant subsidy scheme.
The data had a limited impact on sterling, as analysts said the idea of an economic recovery towards the end of the year is already being challenged by rising COVID-19 cases across Europe and the expectation of new lockdown measures.
British finance minister Rishi Sunak will announce later on Friday a new plan to support jobs at risk from the pandemic.
European Union leaders are due to assess Brexit progress at a European Council meeting on Oct. 15-16. The UK had previously set Oct. 15 as a deadline by which a deal needed to be reached.
"As long as the UK avoids a disorderly hard exit (80% probability) from the EU single market on 31 December, downside risks from the virus restrictions in Q4 would be partly offset by upside risks thereafter once such restrictions are eased," Berenberg economists wrote in a note to clients.
Ireland's foreign minister said on Friday he believed Britain and the European Union could strike a limited trade deal.
(Reporting by Elizabeth Howcroft; Editing by Mark Heinrich and Mark Potter)
((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))
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