October 19, 2016 / 7:50 AM / a year ago

Sterling slips after best day in three months

LONDON, Oct 19 (Reuters) - Sterling slipped back a little on Wednesday after its strongest one-day gains in over three months on a trade-weighted basis, having been boosted after a UK government lawyer said parliament would have to ratify any deal to take Britain out of the EU.

Having fallen to a record low last week on worries that Britain would undergo a “hard” exit from the European Union, in which access to the single market was sacrificed for the sake of tighter controls on immigration, the Bank of England’s trade-weighted sterling index jumped 1.4 percent on Tuesday .

Against the dollar, it reached a one-week high of $1.2326 , but traded a little under that on Wednesday, down 0.1 percent on the day at $1.2281.

Lawyer James Eadie, who is representing the government in a High Court challenge over who has the right to trigger the divorce process between Britain and the EU, said on Tuesday that parliament - not just the ruling Conservative government - would “very likely” have to ratify any Brexit agreement.

“That helped to improve sentiment towards the pound so we had a modest relief rally yesterday,” said Bank of Tokyo-Mitsubishi UFJ currency economist Lee Hardman.

“But for that upward momentum to be sustained and for us to see a larger rebound we’d need to see the courts rule that parliamentary approval is required for triggering Article 50 - in our view that’s more important and the market would be more sensitive to that development.”

London’s High Court said on Tuesday it would rule “as quickly as possible” on whether parliament in its entirety must trigger Article 50, which starts formal divorce proceedings.

With markets focused on political developments, they are less sensitive than usual to econonomic data, but they will nevertheless be looking out for UK labour market numbers due at 0830 GMT.

Hardman said evidence on Tuesday of higher inflation was unambiguously sterling-negative, as that would keep pressure on real government bond yields which have collapsed since the EU referendum, taking away support for the pound.

Against the euro, sterling slipped 0.2 percent to 89.46 pence, having hit an 11-day high on Tuesday.

“Expectations for further falls ... are still strong, and the recent rebound is likely being seen by investors as an opportunity to reload selling positions,” said FXTM analyst Jameel Ahmad. (Editing by Alison Williams)

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