September 18, 2018 / 8:35 AM / 2 months ago

Sterling pulls back from six-week highs ahead of EU summit

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

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

LONDON, Sept 18 (Reuters) - The British pound pulled back from six-week highs on Tuesday as traders booked profits and investors struck a more cautious note about progress towards a Brexit deal ahead of a European Union summit later this week.

Sterling has rallied around 4 percent from 2018 lows hit in mid-August when fears Britain would crash out of the EU without a trade deal spooked investors.

Growing confidence that London and Brussels can secure an agreement has encouraged investors to cut short positions on the pound or to buy into the British currency, although a row within the ruling Conservative Party over the sort of deal Prime Minister Theresa May is proposing has capped gains.

“Although November was cited as a potential date for a deal the reality is there is still a lot more to be discussed and there is a huge gap between the warring factions of the Tory party,” said Jane Foley, an FX strategist at Rabobank.

The pound dipped 0.1 percent to $1.3143 against the dollar, away from the $1.3170 level touched in early trading and sterling’s strongest since July 31.

Against the euro the British currency weakened 0.1 percent to 88.870 pence.

EU leaders are due to meet in Salzburg in Austria later this week, a meeting British Brexit minister Dominic Raab has said would be an “important milestone”.

Raab said the government’s proposal on the post-Brexit border between the British province of Northern Ireland and EU member Ireland - one of the thorniest issues in reaching an agreement - was the only credible one, Germany’s Spiegel Online reported on Tuesday.

“While we are GBP-bullish ahead of the Salzburg EU summit, we hold back from selling EURGBP. Instead, we trade our bullish GBP call against the USD and the China-focused AUD,” Morgan Stanley analysts said in a note, referring to the Australian dollar and its vulnerability to the Chinese economy. (Reporting by Tommy Reggiori Wilkes; Editing by Janet Lawrence)

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