Investing.com - Sterling rallied around 1% against the dollar on Thursday and hit almost three-month highs against the euro after British Brexit Minister David Davis indicated that London would consider paying for access to European markets after Brexit.
GBP/USD was up 1.10% at 1.2643 by 12:49 GMT, the highest level since November 11.
The rise in the pound came after Davis suggested that the UK could make payments into the EU budget in exchange for access to the European markets.
"The major criterion here is that we get the best possible access for goods and services to the European market and if that is included in what he's talking about then of course we would consider it," David said.
The comments fueled hopes that Britain could avoid a so-called ‘hard-Brexit’ which would see Britain give up full access to the single market and the EU customs union in favor of retaining full control over its borders.
EUR/GBP slid 0.71% to trade at 0.8407.
The single currency remained under pressure amid concerns over the health of Italy’s banking system ahead of an upcoming constitutional referendum on December 4, which could see the government resign.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 101.29, off Wednesday’s highs of 101.88 and below the almost 14-year high of 102.12 reached last Thursday.
Demand for the dollar continued to be underpinned after upbeat U.S. economic reports supported the case for higher interest rates.
U.S. incomes and household spending rose for a second successive month in October, data showed on Wednesday and another report showed that private sector hiring continued at a strong pace in November.
The reports lent further credence to the view that the Federal Reserve will raise rates in December.
Investors were looking ahead to U.S. data on manufacturing later in the day and Friday’s nonfarm payrolls report for November.
According to Investing.com's Fed Rate Monitor Tool, 100% of traders expect the Fed to raise interest rates at its policy meeting this month.
Higher rates typically support the dollar by making the currency more attractive to yield-seeking investors.