LONDON (Reuters) - Sterling rallied sharply on Wednesday and British stocks fell after the European Union's chief negotiator Michel Barnier signalled an accommodative stance towards the United Kingdom on ongoing Brexit negotiations.
Barnier said the EU was prepared to offer a partnership with Britain such as has never been with any other third country.
The British currency <GBP=D3> rallied to the day's highs of $1.2985 per dollar, up 0.8 percent on the day. Against the euro <EURGBP=D3>, it extended gains and climbed 0.7 percent at 90.08 pence.
Sterling's gains hit stock markets, however with the FTSE index <.FTSE> hitting the day's low. British 10-year bond yields rose to the highest since May 22, up four basis points on the day <GB10YT=RR>.
"The EU has actually been relatively accommodating for quite a while now and these latest comments makes it very hard for the UK government to keep blaming the EU for the risk of a no-deal," said John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness.
Britain could choose to withhold some payments to the European Union if a deal to ease its exit from the bloc is not reached before it leaves in March, Brexit minister Dominic Raab told legislators on Wednesday.
With both senior European and British government officials refusing to budge from their respective negotiating positions in recent days, the prospect of a no-deal Brexit has piled pressure on the British currency in recent days.
(Reporting by Saikat Chatterjee, Ritvik Carvalho and Helen Reid; editing by Sujata Rao)
