* Dollar climbs against yen, steady against euro
* Sterling drops around 1 percent in reaction to PM Brexit
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Jan 9 Talk of Britain dramatically
reworking trade ties with the European Union after Brexit sent
the pound tumbling to two-month lows on Monday, as signals the
United States could raise interest rates three times this year
lifted the dollar.
The pound slid around 1 percent against both the dollar
and the euro in early trading after weekend
comments from British Prime Minister Theresa May that she was
not interested in keeping "bits of membership" of the European
May said she instead wanted a bespoke deal and also denied
criticism that she was "muddled" in the pursuit of what she
called the right relationship with the EU, the country's largest
Sterling fell 0.9 percent to as low as $1.2164, its weakest
against the dollar since the end of October. It fell 1.1 percent
against the euro too, hitting 86.65 pence per euro, the lowest
"The most significant thing is May's comments over the
weekend (on a Brexit deal) triggering a significant sterling
slide," said Saxo bank's head of FX strategy John Hardy.
"My feeling is we kind of knew this so what did the market
expect really, but her making it explicit gives another reason
to short sterling maybe."
The dollar, meanwhile, crept ahead after signs of wage
pressure in the December U.S. jobs report on Friday proved
enough to lift key 10-year Treasury yields from 2.33 percent to
2.42 percent after a sizable fall earlier in the week.
Chicago Federal Reserve President Charles Evans added
following the jobs numbers that the central bank could raise
interest rates three times this year, faster than he had
expected just a few months ago.
The euro edged up 0.2 percent to $1.0550, as the
steepest monthly rise in German exports in four-and-half years
helped the bolster the shared currency which had ricocheted
between $1.0339 and $1.0621 last week.
"The New Year started with some mildly good news," ING
economist Carsten Brzeski said, adding that the latest batch of
figures brought evidence that the economy gained momentum in the
final quarter of the year.
Cross-asset traders though are still focusing primarily on
the dollar and whether the reflation theme, that finally took a
firm hold after Donald Trump's November election win, is priced
Two non-voting Fed presidents will speak later on Monday,
and there are no less than five speeches lined up for Thursday.
The main economic release of the week is not until Friday, when
retail sales figures for December are out.
Dealers in Asia will also be keeping a wary eye on the yuan
after Beijing engineered a sharp tightening in liquidity
last week that squeezed speculators out of short yuan/long U.S.
China's central bank kept up the pressure on Monday, setting
a firmer fix for the yuan than many had expected at 6.9262 per
dollar, even though that was down from the previous fix.
Yet the defence is proving costly.
Figures out over the weekend showed China's foreign exchange
reserves fell to nearly six-year lows in December as Beijing
fought to stem an outflow of capital that could ultimately force
another devaluation of the currency.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Wayne Cole in Sydney; Editing by Toby