March 9, 2017 / 6:30 PM / 4 months ago

Sterling bounces higher as Brexit bill returns to Commons

3 Min Read

FILE PHOTO - Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016.Jason Lee/Illustration/File Photo

LONDON (Reuters) - Sterling rose against the dollar on Monday, as investors expected Britain's lower house of parliament to over-ride the upper house's changes to Brexit legislation, removing some uncertainty about Britain's EU exit talks.

The bill that will give Prime Minister Theresa May the power to trigger Article 50, notification that Britain will begin a two-year period of exit negotiations, is expected to complete its passage through parliament this week.

The pound was up 0.4 percent at $1.2222, with May expected to trigger Article 50 as early as Tuesday.

The pound was also supported by dollar weakness at the start of a week in which the U.S. Federal Reserve is expected to raise interest rates, CIBC World Markets currency strategist Jeremy Stretch said.

A loss of momentum in the euro after it rallied last week on speculation the European Central Bank could raise rates before the end of the its stimulus programme, also benefited sterling, Stretch said.

"If you overlay that with the presumption that we are going to see Article 50 within the next two or three days, then that may remove some of the political risk which has obviously been oscillating as we've been fearing a potential ping-pong between the House of Lords and House of Commons," he said.

Sterling rose 0.3 percent to 87.45 pence per euro, rebounding from an eight-week low of 87.86 pence touched in early European trade.

"Our view is that the triggering of Article 50 itself is likely to be a non-event and shouldn't come as too much of a surprise to sterling markets," ING strategists wrote in a note to clients.

"What matters more is the initial response by EU officials – in particular the order of priority for negotiations and any rejection of the UK government’s 'Clean Brexit' strategy."

The government has suffered two defeats in parliament, with the upper house of parliament inserting conditions into the Brexit bill saying May must guarantee the rights of EU nationals living in Britain and give lawmakers more powers to reject the final terms she reaches with the EU.

Sterling weakened against the dollar after both votes, as they heightened investors' uncertainty surrounding the start date for Britain's divorce talks with the EU.

Britain is drawing up contingency plans for the event it has to walk away without a deal, Brexit minister David Davis said on Sunday.

Editing by Robin Pomeroy

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