Sterling pushed to its highest against the euro in more than five weeks and against the dollar in more than a month, as Britain and the European Union appeared to reach a broad agreement on a post-Brexit transition period and the Irish border.

"It makes people more comfortable with the euro's strength, as people will monitor for any shift in ECB policymakers' tone," Chuck Tomes, senior investment analyst at Manulife Asset Management in Boston, said of the Reuters source-based report.

The debate among ECB policymakers is increasingly about the steepness of the rate path, as some want future expectations contained given the slow rebound in inflation, five sources with direct knowledge of the discussion told Reuters.

In late-afternoon U.S. trading, the euro zone single currency was last up 0.46 percent, at $1.2344.

But the euro weakened against the pound on relief over the latest development in talks between Britain and the European Union on a Brexit agreement, which raised optimism about a smoother departure for Britain from the trading bloc.

Sterling was last up 0.18 percent, at 87.95 pence per euro. It was up 0.67 percent, at $1.4035, against the dollar .

"That's a positive for the British pound. It has the potential to strengthen further," Tomes said.

The strength in euro and sterling put downward pressure on the dollar as traders speculated whether the Federal Reserve may signal a faster pace of rate increases in the coming months as the labor market tightens further.

The Federal Open Market Committee, the U.S. central bank's policy-setting group, will meet on Tuesday and Wednesday. Rates futures imply traders have fully priced in a rate increase which would raise the target range to between 1.50 percent and 1.75 percent.

"We expect the Fed will stay the course," said Sireen Harajli, currency strategist at Mizuho in New York. "We still think there would be three rate hikes in 2018."

A sharp sell-off in Wall Street stocks likely added more pressure on the dollar.

The dollar index <.DXY>, which tracks the greenback versus a basket of six other major currencies, fell 0.45 percent to 89.826.

The futures market showed speculators bet on the dollar deteriorating further. Their net short positions against the greenback grew to a five-month high last week, according to Commitments of Traders data released on Friday.

(Additional reporting by Saikat Chatterjee, Tommy Wilkes in London; Editing by Meredith Mazzilli and James Dalgleish)

By Richard Leong