June 8, 2018 / 9:23 AM / in 12 days

Sterling flat ahead of key week for Brexit, economy

LONDON (Reuters) - Sterling traded flat on Friday, reflecting uncertainty among traders before a week in which Brexit talks and economic data may determine if the pound’s two-month losing streak continues.

An English ten Pound note is seen in an illustration taken March 16, 2016. REUTERS/Phil Noble/Illustration/File Photo

A weaker dollar and better-than-expected data earlier in the week buoyed sterling and rebuilt some confidence among investors that the Bank of England will raise interest rates this summer.

But the pound’s gains have been kept in check by headlines about major obstacles to a smooth exit by Britain from the European Union in March 2019.

Sterling on Friday dipped below $1.34, retreating from a 12-day high set on Thursday of $1.3472.

That followed a secret recording of Britain’s foreign minister, Boris Johnson, warning there could be a Brexit “meltdown”, published late on Thursday by BuzzFeed.

Prime Minister Theresa May is struggling to get her own cabinet to agree on a plan to prevent a hard border on the island of Ireland if Brexit talks fail.

On June 12 the UK’s lower house will vote on proposed amendments to the government’s EU withdrawal bill.

That risks fuelling a struggle between members of parliament who support and oppose a “hard” Brexit which could force a leadership challenge to Theresa May.

“As Italy’s recent experience shows, political risks can come back suddenly,” said HSBC economist Simon Wells in a note. “Brexit could be hotting up again.”

Data on manufacturing, unemployment and inflation - key gauges of Britain’s economy that have struggled this year - are also due out next week.

After slumping 3.43 percent against a resurgent dollar in May, sterling has started June buoyed by data showing signs of a possible strengthening of the British economy.

However, Britain’s economy is on course to lag behind its international peers again this year as it nears its departure from the European Union, according to new forecasts from the Confederation of British Industry.

Britain went from being the fastest-growing economy in the Group of Seven to its slowest last year as the value of the pound fell after the Brexit vote in 2016 and companies turned cautious about investment.

Investors are pricing in a roughly 40 percent chance of the BoE raising borrowing costs in August - the next time it updates its economic forecasts.

Reporting by Tom Finn, editing by Larry King

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