LONDON (Reuters) - Sterling traded around a one-month low against the dollar on Wednesday in thin pre-Christmas trade, kept under pressure by uncertainty over how Britain’s departure from the European Union will pan out.
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.
By 1625 GMT it was trading flat on the day at $1.2365, close to Tuesday’s one-month low of $1.2313.
Sterling has for the past six months been less sensitive than usual to economic data, driven more by concerns over Britain’s EU exit. Any signs that a hard Brexit, in which Britain loses access to the single market, may be on the cards have tended to drive down the currency, with indications to the contrary giving it a boost.
British Prime Minister Theresa May has said that she will trigger Article 50, which starts the formal departure process, by the end of March.
“Brexit risks are likely to re-emerge as we near the formal start of exit negotiations in the first quarter of 2017, refocusing the market’s attention on the UK’s large current account deficit and the necessary adjustment, which we see as likely to result in further sterling weakness,” wrote UBS strategists in a research paper.
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.
But that rebound ended abruptly last Wednesday when, after hiking interest rates for the first time in a year, the U.S. Federal Reserve indicated they 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 it since then.
Although it has slipped a little against the euro this week and was down half a percent on Wednesday at 84.44 pence, the pound is still close to five-month highs of 83.05 pence touched earlier this month.
“If we’re talking about UK idiosyncratic developments, I think euro/sterling is a better expression (than sterling/dollar),” said Barclays currency strategist Hamish Pepper.
“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.”
editing by John Stonestreet; editing by John Stonestreet