Sterling slips from six-week highs before EU summit

FILE PHOTO: A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand, October 12, 2010. REUTERS/Sukree Sukplang/File Photo

LONDON (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 this week.

Sterling has rallied around 4 percent from 2018 lows hit in mid-August when fears that 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 after briefly touching $1.3173 in early trading, sterling’s strongest since July 31.

Against the euro the British currency weakened 0.2 percent to 89.08 pence and was headed for its biggest daily decline in over two weeks.

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 and Tom Finn; Editing by Matthew Mpoke Bigg