"We think the institutional and political constraints to a no-deal are sufficiently large to prevent such a scenario", Kamal Sharma, director of G10 FX strategy at Bank of America Merrill Lynch, said in a note.
He struck a positive chord with European Union chief negotiator Michel Barnier, who talked up the chances of a deal but remained firm on the Irish border issue.
The EU and United Kingdom agreed a Joint Report last December which provides for a "backstop" to take effect if no other solutions were found to avoid a hard border on the island of Ireland.
The backstop is a safety net agreed in December that guarantees an invisible border, though there is no agreement to this date on how it will work. "This backstop is critical, it's essential to concluding these negotiations".
After meeting British Brexit minister Dominic Raab in Brussels, Barnier hailed progress on some security issues but warned there were still major differences over protected geographical indicators like champagne and stilton - and Ireland.
"The news earlier in the day had been less positive, with reports suggesting that high level officials are not optimistic of an agreement ahead of the European Union summit in the middle of October", Craig Erlam, senior market analyst at OANDA, said in a note.More news: Kimi Raikkonen - I'm free to race Sebastian Vettel
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The Brexit secretary also joked that he was not a "gambler" when asked to predict when the so-called divorce deal, the Withdrawal Agreement, would be ready to sign.
Raab said: "On Northern Ireland we remain committed to giving effect to the joint report, continuing the work on the potential solutions, working with Michel and his team on some of the issues he's raised and continuing to drive that forward".
Barnier on Friday (31 August) told reporters after several hours of talks with UK Brexit secretary Raab in Brussels that agreeing to a legally operational backstop was a matter of "urgency".
"The solutions must be workable".
The pound hit a one-week high against the euro, extending overnight gains and heading for its biggest two-day rise since November after the bloc's chief negotiator said day it was ready to offer Britain an unprecedentedly close relationship after it quits.
The pound surged as fears that Britain could go through a hard Brexit eased after Michel Barnier signalled an accommodative stance towards London in ongoing talks.