March 7, 2018 / 10:24 AM / in 9 months

Sterling slips to three-month low vs euro on nagging Brexit worries

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote

By Jemima Kelly

LONDON, March 7 (Reuters) - Sterling skidded to its weakest level against the euro since late November on Wednesday, as investors worried about Britain’s ability to secure a favourable divorce deal with the EU, ahead of two Brexit-related speeches later in the day.

The chairman of European Union leaders Donald Tusk will at 1215 GMT present draft guidelines on what the bloc would like to see in a trade agreement with Britain after the country leaves in 2019, in what will be the basis for talks by the EU’s chief negotiator with London about a future relationship.

Later in the day, British finance minister Philip Hammond will tell the European Union it must drop its tough stance on the City of London and allow financial services to be part of Britain’s post-Brexit trade deal with the bloc.

Brussels has so far refused to let Britain pick and choose the parts of the EU’s single market to which it can continue to have free access, chief among them the United Kingdom’s large financial services industry.

Sterling slipped as much as 0.4 percent against a broadly stronger euro ahead of the speeches, hitting 89.68 pence per euro, its weakest since Nov. 28.

“This is clearly suggesting that markets are nervous about Brexit, with the narrow focus on the EU leaders’ guidelines and the speech by Hammond,” said ING currency strategist Viraj Patel, adding part of the move in euro/sterling had been driven by technical factors.

Sterling also slipped against the dollar, trading down 0.2 percent on the day at $1.3865.

Analysts said sterling was also being weakened by a risk-off mood across markets on the back of worries about a trade war led by U.S. President Donald Trump’s administration, and by concerns over the impact that such a trade war might have on Britain.

“We view trade protectionism risk aversion as sterling-negative,” wrote MUFG global markets strategist Derek Halpenny in a note to clients. “This is increasingly looking like a global environment that is unfavourable for the UK and the task that lies ahead in dealing with Brexit,” he added.

A Reuters poll of analysts on Wednesday found sterling is set to trade slightly higher in a year’s time, near the $1.41 level, less than a month before Britain is formally due to leave the EU, indicating currency strategists remain optimistic London and Brussels can manage a smooth exit and transition deal.

Earlier, data showed British house prices rose at their slowest annual pace in nearly five years last month, in the latest sign of weakening in the housing market as Britain approaches its departure from the European Union. (Editing by Janet Lawrence)

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