January 10, 2020 / 9:06 AM / 11 days ago

Sterling holds near two-week lows but expected to rise in 2020

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

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

By Yoruk Bahceli

LONDON, Jan 10 (Reuters) - The pound edged down against the dollar on Friday, holding near two-week lows hit after Bank of England governor Mark Carney signalled a possible rate cut a day earlier.

Carney had said on Thursday there could be a “relatively prompt response” from the bank if the current spell of economic weakness persisted.

Some optimism was generated by a survey of recruiters on Friday which showed British employers increased their number of new permanent staff for the first time in a year in December.

On the Brexit front, British lawmakers approved legislation on Thursday which will allow Britain to leave the European Union on Jan. 31 with an exit deal, ending more than three years of tumult over the terms of the divorce, although the vote was considered a non-event for markets after Prime Minister Boris Johnson’s landslide election win in December.

The pound was down 0.1% against the U.S. dollar in early London trade at $1.3059 holding close to Thursday’s floor at$1.3014, the lowest level since Dec. 27. It was up around 0.1% against the euro, at 85.00 pence.

Analysts say that pound is now being kept weak due to uncertainty around Britain’s future trade relationship with the EU after a transition period expires at the end of the year.

Still, the pound is expected to gain more than 3% against the dollar this year, supported by interest rate differentials and hopes for a smooth departure from the European Union, a Reuters poll of nearly 60 forex strategists found on Friday.

The polled analysts also expect that the pound would rise to $1.32 at the end of January, when Britain is due to leave the European Union.

“With spot trading at around 1.30, we think GBP/USD is a ‘buy’ on a three-six month horizon, though we anticipate a resumption of downside risks in the second-half of the year, towards the end of the Brexit transition window,” BMO’s European head of FX strategy Stephen Gallo said in a client note.

“But we certainly think that the 1.35-1.37 range in the pair is achievable beforehand, in the event of a ‘positive fiscal shock’”.

In the short term, technical analysts highlight support for sterling at the 50-day moving average at 1.3010 which has so far held. But a break below 1.3000 is seen opening the path for sterling to a fall towards 1.2920 (Reporting by Yoruk Bahceli; additional reporting by Sujata Rao, Editing by Angus MacSwan)

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