July 16, 2018 / 8:42 AM / in 5 months

Sterling flat ahead of UK parliament debate on Brexit

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

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

LONDON, July 16 (Reuters) - The pound traded flat against the dollar and the euro on Monday ahead of a debate in parliament that could reveal significant dissatisfaction within British Prime Minister Theresa May’s party over her plans for Brexit.

Sterling has struggled to capitalise in recent weeks on signs the economy is improving because of mounting uncertainty over whether Britain can secure a trade deal with the EU before it leaves the bloc in March.

Markets expect the Bank of England to hike interest rates in August but the British currency has fallen 9 percent since April partly because of a dispute between May and members of her party who feel she wants to keep Britain too closely tied to Brussels.

The prime minister is expected to survive today’s debate on a customs law but a vote on amendments will indicate the extent of parliament’s dissatisfaction with her plan.

That risks undermining the government and could increase the chances of an early election which would hurt the pound.

“Political uncertainty helps to explain why the pound has not strengthened yet on the back of the government’s plans for a softer Brexit,” said analysts at MUFG.

At 0815 GMT the pound traded flat against the pound at $1.3242 and against the euro at 88.30 pence. .

Sterling finished last week down one percent against the dollar, its biggest weekly drop since late May.

President Donald Trump’s visit to the UK last week added to uncertainty about Brexit talks and Britain’s trade relationship with the United States after the divorce.

May attempted to face down would-be eurosceptic rebels by warning on Sunday that if they sink her premiership then they risk squandering the victory of an EU exit that they have dreamed about for decades.

Meanwhile over the weekend, German business groups told members to prepare for a hard Brexit.

Long bets on sterling have been whittled down in recent days with overall net positions mildly bearish on the currency, positioning data shows. (Reporting by Tom Finn; Editing by Toby Chopra)

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