The pound rose today as markets grew more optimistic a Brexit deal would be reached, even as implied volatility gauges pointed to further price swings ahead of the December 31 deadline. 

Sterling dropped as low as $1.3135 last Friday when British Prime Minister Boris Johnson said a no-deal was "very, very likely". 

But it rebounded as high as $1.3444 yesterday amid relief that negotiators agreed on Sunday to "go the extra mile" to try to reach a deal and the European Union's chief Brexit negotiator said a deal was still possible. 

The pound continued this trajectory today, rising by 0.3% to reach $1.3369 as traders waited for further updates on negotiations. Against the euro, it was up around 0.3% at 90.92 pence. 

Commerzbank's head of FX and commodity research, Ulrich Leuchtmann, said the pound was in "wait-and-see" mode. 

"We have the potential that we still get a deal done before the end of the year. Therefore there's no reason for a pound sell-off at the moment, but we have to wait," he said. "Frankly, nobody expects anything in the next few days." 

Britain and the EU have just over two weeks left to negotiate a deal covering nearly $1 trillion in annual trade before Britain loses zero-tariff, zero-quota access to the EU's single market on December 31. 

Speculative positioning on the pound turned net bullish in the week to December 8, according to weekly futures data, suggesting the market is still optimistic about the chance of a deal. 

"Our view is once again that a deal is firmly more likely than not, with the risks tilted towards full resolution by the end of the week," wrote Deutsche Bank strategist Shreyas Gopal in a note to clients.

He added that a Brexit deal would see sterling rally to around $1.36. 

"Confirmation of a deal would remove one of the largest lingering risks for the pound, and should allow the market to at a minimum take out the increased negative rates pricing of the last few days," he said. 

The Bank of England meets on Thursday. Analysts say the risk of negative rates being introduced in 2021 depends on the impact of Brexit on the UK economy. 

Britain's jobless rate rose in the three months to October and redundancies reached a record high as companies were hit by new Covid-19 restrictions, official data showed.