Sterling has steadied close to its highest levels in ten months against the dollar today after comments from UK finance minister Philip Hammond about a transitional leaving deal with the European Union.

They soothed market fears that the country is set for a hard Brexit.

Today the pound is up 0.1% at $1.3079, less than a cent away from a ten-month high of $1.3159 hit yesterday.

Against the euro, sterling has lost almost 15% since the vote. It is barely changed on the day at 89.49 pence.

GBP-USD spot rate 28 July

Mr Hammond said he wanted to avoid a "cliff-edge" where goods and people stopped being able to move across Britain's borders when it leaves the EU in March 2019.

He added EU nationals would continue to be able to work in Britain immediately after its exit from the EU, and changes to rules affecting relations with the EU could be phased in gradually over the transition period, which should be complete by the next scheduled parliamentary election in 2022.

Separately, the Financial Times reported Mr Hammond has told business leaders he wants companies to have full access to the single market and customs union for two years after Brexit, followed by a further implementation phase.

The finance minister’s comments follow similar ones from fellow cabinet ministers in recent weeks, which have led investors to bet on a lower chance of a hard Brexit in which Britain loses any preferential access to the single market, and which have given some support the currency.

But ING currency strategist Viraj Patel said the EU would have to agree to such a deal before traders really begin to price it in and for the currency to rally further.

"It’s good that the UK is moving towards this centre-ground on Brexit, but equally we need to see what the EU are willing to offer," Mr Patel said.

"For markets to really start pricing this in, we need some consensus there."

He added over the longer term, such government unity on the need for a transitional deal diminished further downside risks for sterling, which has fallen around 14% against the dollar since last June's vote for Brexit.

Investors are now looking ahead to next Thursday, when the Bank of England will make a policy decision and release its quarterly inflation report.