LONDON (Reuters) - Sterling jumped more than 0.5% against the U.S. dollar on Wednesday after the Times newspaper said the European Union was ready to agree to a major concession in Brexit negotiations.
The bloc is prepared to offer a mechanism for the Northern Irish assembly to leave a new so-called backstop after a number of years, the report said.
(Graphic: GBP Positions https://fingfx.thomsonreuters.com/gfx/mkt/12/6988/6919/GBP%20Positions.png)
"By allowing Northern Ireland to take the decision on whether they want to stay in the EU or not, the market has taken this news positively as it will be a major step towards a breakthrough in the Brexit deadlock," said Lee Hardman, a currency strategist at MUFG based in London.
The pound was last up 0.4% at $1.2265 , after spiking to as much as $1.2292. It was also up against the euro by 0.2% at 89.54 pence (EURGBP=D3).
The British currency has been on the back foot in early London trading on media reports that British Prime Minister Boris Johnson faces rebellion in his cabinet if he leads the country to a no-deal Brexit.
A "very large number" of Conservative members of parliament are prepared to resign if the UK faces leaving the EU without a deal, the Times newspaper reported, citing an unnamed cabinet minister.
The Financial Times reported on Wednesday that a least 50 members of parliament from the party will revolt against a general election manifesto pledging to pursue a no-deal Brexit.
Meanwhile, the Guardian reported that the European Union may offer to extend the Brexit deadline until June 2020.
Jane Foley, a senior foreign exchange strategist at Rabobank, said the market remains highly sensitive to Brexit news and so rhetoric from key players in the Brexit decision-making process could have an impact.
Prime Minister Boris Johnson has consistently said the United Kingdom will leave the EU on Oct. 31 with or without a deal.