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* Pound hits 2-1/2-month high vs dollar
* Forecast-beating PMIs support sterling
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Adds new quote, latest prices)
LONDON, Nov 23 (Reuters) - Sterling rallied on Monday,
briefly touching a 2-1/2-month high, as more positive news about
a potential COVID-19 vaccine propelled investors to buy riskier
currencies and investors bet Britain and the European Union
would clinch a Brexit trade deal.
London and Brussels this week continue their negotiations to
agree a deal on their future trading relationship, though time
is now running very short as Britain's post-Brexit transition
period ends in fewer than six weeks.
Without an agreement Britain would revert to trading with
the EU on World Trade Organisation rules, an outcome both sides
believe would prove highly disruptive for their economies.
Most investors believe a deal will be clinched, even if it
is a bare-bones one that leaves some trade discussions for
later.
News on Monday that AstraZeneca's vaccine for the novel
coronavirus could be around 90% effective added to the positive
mood.
The British currency rose 0.8% to as high as $1.3396
, its strongest since early September, before the gains
faded in late London trading. It last stood at $1.3304.
Against the euro it rose more than half a percent to 88.68
pence, a near two-week high.
"There is scope for a relief rally in GBP on news that a
deal has been signed, though the failure of the UK and EU to
agree a comprehensive deal will likely limit upside potential,"
said Rabobank strategist Jane Foley, noting that a limited,
"skeleton" trade deal had been priced in to the pound.
"Since the scenario described above is a consensus view,
there is greater scope for volatility in EUR/GBP if a deal is
not struck. This is still possible," she added.
Ulrich Leuchtmann, an FX strategist at Commerzbank, said an
extension to the Dec. 31 transition period end-date is now
likely as the two sides run out of time to forge a deal.
"The FX market is seeing it as a GBP positive sign that the
negotiations are being continued in December," he said.
The widely watched flash purchasing managers index (PMI
surveys for November came in better than expected, with the
composite measure touching 47.4 against a forecast of 42.5.
However, any reading below 50 still represents a contraction,
and the latest lockdown measures are weighing on the economy.
In a busy week for the UK, Finance Minister Rishi Sunak will
unveil his spending review on Wednesday. He vowed over the
weekend that there would be no return to austerity, even as the
coronavirus crisis pushes Britain's debt further above 2
trillion pounds.
(Reporting by Tommy Wilkes;
Editing by Gareth Jones and Andrea Ricci)
