January 17, 2018 / 9:47 AM / a month ago

CORRECTED-Sterling pauses after rally as traders watch Brexit developments

(Corrects sterling value in paragraph 7 to $1.3778, not $1.3878)

* Graphic: sterling and gilt yields bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

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

LONDON, Jan 17 (Reuters) - Sterling edged lower against the dollar on Wednesday after a rally as traders took profits and awaited the latest developments in negotiations over Britain’s departure from the European Union.

The pound has in recent days reached its highest levels since the vote to leave the European Union in June 2016, with the better-than-expected economic performance of the British economy and hopes that Britain will soon agree a transition deal with Brussels supporting sterling.

“I expect the political noise to move the pound on a short-term basis. But will it change the overall direction of the last 12 months? I don’t think so,” said Michael Hewson, chief analyst at CMC Markets, who remains bullish on the pound.

Hewson said the only event that could send sterling sharply lower was if talks with the EU broke down completely, which he said did not look likely as Brussels looked more amenable to negotiating with Britain.

The president of the EU Commission, Jean-Claude Juncker, said on Thursday Britain was welcome to rejoin the trading bloc after it has left next year.

In London, the European Union (Withdrawal) Bill is set to complete its first journey through parliament’s lower house some time after 1900 GMT, a milestone on the long road towards cementing the legal foundations of Brexit.

The pound was down marginally against the dollar at $1.3778 after hitting a high overnight of $1.3836. Data on Tuesday showing a slight fall in December inflation in Britain checked the pound’s rally.

Against the euro, which has gained broadly in recent days on expectations the European Central Bank would soon move to rein in monetary policy, the pound was up 0.2 percent at 88.7 pence .

“The talks about the transition period are due to start in late January, the negotiations on future trade relations following an EU summit at the end of March. Until a reversal of the plans is in sight EUR-GBP will continue to trade in a narrow range,” Commerzbank analysts wrote in a note. (Reporting by Tommy Wilkes; Editing by Angus MacSwan)

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