LONDON: Sterling jumped to a one-week high against the dollar on Friday after European Union negotiator Michel Barnier said the EU was open to discussing other "backstops" on the Brexit issue.
The EU has made the so-called Irish 'backstop' a condition for any divorce deal before Britain leaves the EU on March 29, 2019, and both sides are under increasing pressure to overcome the outstanding issues.
In testimony to British lawmakers dated Sept. 3 Barnier said a backstop on Ireland was crucial but added that the EU remained open to finding other solutions
"We are open to discussing other backstops, so we can discuss this text, we can make changes to it," he said.
"We are ready to simplify these checks," he added, referring to the border between the United Kingdom and Ireland.
The British currency jumped 0.7 percent against the dollar to $1.3011 and by a similar margin against the euro at 89.31 pence.
Barnier's comments come after a senior EU lawmaker told Reuters earlier this week that the European Union could offer new guarantees to Britain to win London's support for a solution aimed at avoiding an Irish border after Brexit.
"Barnier sounds a little bit more conciliatory, and this could mean perhaps a little bit more progress has been made on the Irish border question, which remains a huge hurdle," said Rabobank senior currency strategist Jane Foley.
The British currency has had a volatile week as headlines on the progress of Brexit negotiations forced traders to switch positions rapidly in a currency market that is broadly short on the pound based on positioning data.
A Reuters poll showed that sterling could rise as much as six percent in a year, but a no-deal Brexit could see it falling as much as eight percent from current levels.
British government bond futures extended losses by around 15 ticks to hit a session low of 122.19, down 30 ticks on the day, while 10-year gilt yields GB10YT=RR stood three basis points higher on the day at 1.45 percent.
British blue chip stocks, which typically get an accounting boost on their foreign revenues when the pound falls, saw their losses worsen as the British currency rose. At 1101 GMT, the FTSE 100 was down 0.9 percent.