Wires

Pound pinballs over Tusk comments on Brexit

Elizabeth Howcroft

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

LONDON, Oct 11 (Reuters) - Sterling took a wild ride on Friday after top EU official Donald Tusk said that the "time is practically up" for Britain to reach a Brexit deal.

Sterling had been at 3-week high after its best day since February, ahead of a meeting between British Brexit Secretary Stephen Barclay and the European Union's chief negotiator Michel Barnier.

Sterling tumbled to $1.2409 in a matter of minutes from just above $1.25 on Tusk's comments, before recovering back to $1.2480 as his comments unfolded, talking about "promising signals" from the Irish prime minister that a deal was possible.

It had been lifted on Thursday after British Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar had said they saw "a pathway to a possible deal."

Versus the euro, the pound also dropped off a near a three-week high, sliding to 88.68 pence from 88.05.

The British and EU negotiators were meeting at the EU Commission's Brussels headquarters for breakfast talks, with hopes it could pave the way for a Brexit transition deal that has long proved elusive at an Oct. 17-18 summit.

"If the meeting doesn't go too badly you may get a further pop (higher in sterling) but it will be a matter of hours for the ERG and DUP to opine on it," said Tim Graf, head of macro strategy at Slate Street Global Advisors, referring to the pro-Brexit faction of the British Conservative party and the Northern Irish party which supports the UK government.

"If there's an endorsement the rally can continue," Graf added. "But the reality is the extreme Brexit camp seem to be coming to the view that no-deal is the way forward and whatever deal is passed won't be good enough for them."

Thursday's peak of $1.2469 was the pound's largest intraday percentage gain against the dollar in seven months and the biggest against the euro since March in the run up to the previous Brexit deadline date.

In a joint statement, the British and Irish leaders said they could "see a pathway to a possible deal." Varadkar also later told reporters that the meeting was "very positive."

Deutsche Bank's forex strategist George Saravelos said he is "turning more optimistic on Brexit" and no longer negative on the pound, as a result of the Irish leaders' comments.

Surging demand for one-month risk reversals, the contract covering the Oct. 31 Brexit deadline, also reflected rising optimism on the possiblity of a Brexit deal. .

This followed a lively week for the pound, which began with a public row between London and Brussels, with reports that a deal was "overwhelmingly unlikely" and Tusk accusing Johnson on Twitter of playing a "stupid blame game."

It is on course for its second week of gains against the dollar and its first weekly rise against the euro in three weeks.

Futures data last week showed that positions betting against the pound had eased. But there were still more negative bets than positive ones, leaving the market vulnerable to a squeeze higher in the event of any favorable news.

(Reporting by Elizabeth Howcroft; Editing by Alison Williams)