October 24, 2018 / 8:36 AM / 10 months ago

Sterling falls before UK PM May addresses lawmakers over Brexit

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

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

By Tom Finn

LONDON, Oct 24 (Reuters) - The pound fell to a three-week low on Wednesday before British Prime Minister Theresa May meets with Conservative Party lawmakers, some of whom have discussed toppling her in anger at her Brexit negotiations.

May is seeking to win over lawmakers in her party who oppose her approach to Brexit negotiations, stuck at an impasse just over five months before the United Kingdom leaves the European Union.

The prospect of a leadership challenge and of politics scuppering an agreement with the EU has weakened the currency in recent days.

Sterling fell on Wednesday to $1.2934, its lowest since Oct. 4, and traded down 0.3 percent. Against the euro, the pound was flat at 88.25 pence.

“Sterling are parsing the words coming out of Westminster and Brussels, for clues but the issue is that the range of final outcomes is very broad,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

“We are still stuck in the $1.28 to 1.32 range. The answer for investors is to stay close to benchmark or slightly short,” he said.

Sterling briefly gained half a percent against the dollar and euro on Tuesday after a media report that the EU could offer May a UK-wide customs union to clinch a Brexit deal.

A disagreement on a fallback plan for the border between Northern Ireland and Ireland is a key sticking point.

The British newspaper The Times on Wednesday reported that a long-running transition phase could be rolled over annually if needed - effectively leaving the UK in an open-ended Norway-style relationship with the EU.

“GBP may trade softer if there’s a leadership challenge, although it’s unlikely that Theresa May loses the challenge,” said Mayank Mishra, a global strategist at Standard Chartered.

“We believe GBP is pricing considerable risk premium due to Brexit and political uncertainty at this point, suggesting room for upside as these uncertainties fade,” he added. (Additional reporting by Sujata Rao in London and Vatsal Srivastava in Singapore, editing by Larry King)

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