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Sterling traded choppily and within a wide range, ahead of a summit where EU leaders will discuss their future trade relationship with the UK.

The pound slipped 0.5 per cent against the dollar to $1.2869 in early dealings. It then reversed course, rising 0.5 per cent to $1.2997, after a Bloomberg report suggested the UK would stick with talks beyond an October 15 deadline.

Against the euro, sterling started the morning 0.3 per cent lower at €1.0981. The single currency, however, recouped those losses to climb 0.4 per cent to €1.1061 in the afternoon.

London’s exporter-heavy FTSE 100 index tracked the pound’s swings, opening 0.5 per cent higher before moving 0.3 per cent lower.

At the EU summit starting on Thursday, European leaders are expected to forge their own negotiating plan with Britain, as the deadline for the UK leaving the bloc’s single market and customs union on December 31 looms.

“The more time goes on, the more likely it looks that no deal will happen,” said Peter Westaway, chief economist for Europe at Vanguard.

But he added that the difference between no deal and a basic trade deal, which meant zero tariffs or quotas but maintained supply chain disruptions, was “slight”.

Ian Tew, a sterling trader at Barclays, said that although the pound was highly sensitive to any hints of sentiment about Brexit, “the market is reacting and acknowledging the tail risk of a no deal”.

The “recent rhetoric and the no-deal phrase is being expressed quite frequently”, he added, raising concerns that “these talks lead to further negativity”.

In European equities, the region-wide Stoxx 600 traded flat, tracking US stock market futures, which pointed to Wall Street also opening little changed.

Contracts betting on the top 100 stocks in the technology-heavy Nasdaq rose 0.2 per cent, while S&P 500 futures were flat.

The large-cap index gained almost 4 per cent last week, as polls forecast a decisive November election victory for Donald Trump’s Democratic challenger Joe Biden who, in the event of becoming president, is expected to unleash more than $2.2tn of fiscal stimulus into the pandemic-scarred economy.

That exuberance faded on Tuesday when two major drug companies, Johnson & Johnson and Eli Lilly, halted trials of an experimental Covid-19 vaccine and therapy, respectively, because of safety concerns.

In debt markets, traders continued snapping up bonds issued by economically weaker eurozone nations, in the expectation that the European Central Bank would expand its scheme to buy the securities to bolster financial stability through the pandemic.

The yield on Italy’s 10-year bonds, which moves inversely to prices, hovered around a record low at 0.659 per cent. Greece’s 10-year bonds followed the same pattern, yielding 0.788 per cent.

On Tuesday, Italy for the first time issued bonds that pay buyers no interest. With eurozone consumer prices falling and coronavirus cases rising, investors are betting that the ECB will boost the size of its pandemic emergency purchase programme from its current €1.35tn in the coming months.

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