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Uncertainty over Brexit negotiations keeps sterling under pressure

Some British sterling money in coins and bank notes is seen September 2, 2005. BANKG REUTERS/Catherine Benson

Published: 6 April 2017

By Ritvik Carvalho | LONDON
Some British sterling money in coins and bank notes is seen September 2, 2005. BANKG REUTERS/Catherine Benson

Britain’s pound edged lower against the dollar on Thursday, as investors saw uncertainty surrounding Britain’s departure from the European Union outweighing some signs of economic resilience.

The pound bounced on Wednesday on stronger-than-expected services data, which gave investors a sign Britain’s dominant services sector — key to its economy — was still thriving.

But it reversed some of those gains on Thursday, as investors took the view that until either Britain or the EU shows signs of softening their negotiating stances, Brexit would be negative for the British economy.

Sterling was off 0.1 percent at $1.2479 by 0902 GMT. It was also 0.1 percent lower at 85.85 pence per euro.

“The moment I’ll turn my view around and turn materially long on sterling is when I know the European Union is willing to give Britain a good deal on services — financial services to be more specific,” said Jordan Rochester, currency strategist with Nomura.

“Confidence on both sides is pretty firm, so the initial talks are going to be slow and it’s not until mid-May when those talks start so we’re a good six weeks away from them.”

Sterling has lost nearly a fifth of its value against the dollar since Britain voted to leave the EU last June.

Since then, investors have broadly stayed bearish on the currency despite initial signs of resilience from the economy that confounded expectations of a slowdown, worried about long-term uncertainty surrounding Brexit.

Speculators took their bets against the pound versus the dollar to record high levels last month, and although they have since trimmed those short positions, they remain close to those levels. [IMM/FX]

European Council President Donald Tusk will meet British Prime Minister Theresa May in London on Thursday.

The EU’s chief negotiator, Michel Barnier, on Wednesday insisted that Britain must stop pressing for immediate parallel talks with the bloc on a post-Brexit free trade deal, and first agree on withdrawal terms.

Investors are now eyeing the EU summit on April 29, where EU directives for Brexit negotiations will be ratified.

“The ebb and flow of Brexit negotiations looks well underway, with PM May seemingly softening some of the red lines (e.g. free movement) during a transition period post-Brexit. Yet cable (sterling/dollar) could well trade well within $1.23-26 for a couple more weeks,” ING strategists wrote in a note to clients.

(Reporting by Ritvik Carvalho Editing by Jeremy Gaunt.)

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