Sterling lagged in early London trading on Monday as Brexit talks commenced in Brussels. European shares hovered near an 8-month peak as stronger-than-expected Chinese factory output, combined with optimism for a COVID-19 vaccine, increased investors' risk appetite.  After initially opening higher, the pound declined as investors focused on Brexit negotiations, which have failed to make progress on two significant issues viz. competition rules and fishing.

Britain left the EU in January and both sides are trying to reach a deal that would govern nearly 1 trillion dollars in annual trade before the status-quo transition period ends in December. 31. Some analysts said the recent departure of Dominic Cummings, Prime Minister Boris Johnson's top advisor and Brexit campaigner, was a positive development, which could lead to Britain being more willing to compromise.

At 0914 GMT sterling was flat against the dollar at USD 1.3198, having risen to as much as USD 1.3242 in early London trading. Versus the euro, it was down around 0.2% at 89.825 pence per euro.

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