December 21, 2016 / 10:17 AM / 8 months ago

Sterling edges close to one-month lows vs dollar

* Graphic: sterling and gilt yields bit.ly/2dgAXn1

* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh

By Jemima Kelly

LONDON, Dec 21 (Reuters) - Sterling edged close to a one-month low against the dollar on Wednesday, kept under pressure by uncertainty over Brexit negotiations and by a greenback buoyed by expectations for faster U.S. monetary tightening than previously forecast.

Data showing Britain's public finances with a slightly bigger-than-expected deficit in November - but on track to meet new, less ambitious deficit reduction goals - had little impact on the pound, which was trading down 0.3 percent on the day at $1.2331.

Sterling has for the past six months been less sensitive than usual to economic data, driven more by concerns over Britain's departure from the EU. Any signs that a hard Brexit, in which Britain loses access to the single market, is on the cards have tended to drive down the currency, with signs to the contrary giving it a boost.

But while an easing of concerns over a hard Brexit had led to a 5 percent recovery in sterling against the dollar between mid-October and mid-December, after a court ruled that the government could not trigger formal Brexit talks without parliamentary approval, that rebound was ended abruptly last Wednesday by the U.S. Federal Reserve.

After hiking interest rates for the first time in a year, the Fed indicated that rates could rise as many as three times in 2017, having flagged just two likely hikes in September. That sent the dollar soaring, with sterling losing almost 3 percent against the greenback since then.

Against the euro, though it has slipped a little this week and was down 0.3 percent on Wednesday at 84.31 pence, the pound is still close to five-month highs of 83.05 pence touched earlier this month.

"I think the dollar has played a very large role in where cable (sterling/dollar) is trading," said Barclays currency strategist Hamish Pepper. "If we're talking about UK idiosyncratic developments, I think euro/sterling is a better expression."

"Given where we were in early November - essentially at 90 pence or above - that reflects the fact that there's been a general move away from that hard Brexit scenario."

On a trade-weighted basis, the pound is still trading over 10 percent more weakly than where it was trading six months ago, just before June's vote for Brexit.

British Prime Minister Theresa May said earlier this week that there might be a period of adjustment - an "implementation phase" - after Britain leaves the EU. That came after finance minister Philip Hammond last week backed the idea of a transition period - a phrase May seemed keen not to use.

"The Prime Minister's confirmation is important in our view, as it eases some uncertainty around the UK's future negotiating position, and diminishes somewhat the likelihood that we may be headed for a 'hard Brexit'," wrote IronFX analyst Marios Hadjikyriacos. (Editing by Toby Chopra)

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