 "Pounds, British, UK, economy, currency")
By Saikat Chatterjee
LONDON (Reuters) - The British pound gained a percent against the dollar and the euro in relief after Britain and the European Union agreed to continue talks on post-Brexit trade beyond Sunday's deadline.
Against the dollar, the pound rose 1.1% to $1.3360, compared with Friday's close of $1.3222. Against the euro, it strengthened 1 percent to 90.58 pence.
While trading was largely illiquid in late Sunday hours, the jump in the value of the pound pointed towards a relief rally for the British currency on Monday, after it fell to a one-month low last week on concern that Britain would crash out of the EU's orbit without a deal in place.
British Prime Minister Boris Johnson and the president of the EU's executive Commission, Ursula von der Leyen, had given negotiators a Sunday deadline to find a way to resolve an impasse on arrangements that would guarantee Britain zero-tariff and zero-quota access to the EU's single market.
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On Sunday, they mandated negotiators to continue discussions.
Despite the gains, analysts were cautious on the outlook for the pound, as the currency's 18% rally to a 2-1/2 year high earlier this month has meant the room for disappointment is low if a trade deal falls short of market expectations.
"There is already a lot of good news priced in at these levels and even if we get some sort of a skinny deal before the end of the year, the market will see through it and sell the pound," said Marija Veitmane, a multi-asset strategist at State Street Global Markets.
Latest positioning data for the week ending Dec. 8 showed hedge funds flipped to a net long position on the pound on expectations of a trade deal.
(Reporting by Saikat Chatterjee; Editing by Andrew Cawthorne and Alex Richardson)
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