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Sterling hits seven-week low before second Lords' Brexit vote
March 7, 2017 / 10:00 AM / 8 months ago

Sterling hits seven-week low before second Lords' Brexit vote

* Graphic: Sterling and gilt yields

* Graphic: World FX rates in 2017

* Graphic: Trade-weighted sterling since Brexit vote

By Ritvik Carvalho

LONDON, March 7 (Reuters) - Sterling fell to a seven-week low against the dollar on Tuesday, ahead of a second vote in Britain’s upper house of parliament on legislation giving Prime Minister Theresa May the right to start formal Brexit talks.

Britain’s House of Lords will on Tuesday try to force the government to give lawmakers a greater say over the terms of Britain’s exit from the EU and final approval of an eventual deal with the bloc.

The government is set to lose the vote though ministers are determined to overturn any chances before they become law. Britain needs to trigger “Article 50” to launch formal negotiations with the EU, and expects to do so this month.

The pound fell 0.3 percent to $1.2202, its lowest level since Jan. 17. It also weakened 0.3 percent to a seven-week low of 86.71 pence per euro.

“The run up into the triggering of Article 50 is having a negative impact (on sterling), as have some of the recent data confirming a deceleration in growth in the first quarter of the year,” said Stephen Gallo, currency strategist at BMO Capital Markets, adding that he thought politics was affecting the currency more than fundamentals.

Sterling has lost nearly a fifth of its value against the dollar since the shock Brexit vote last June.

Analysts say that the currency has largely been driven by domestic politics, but is increasingly under pressure from data suggesting Britain’s economic resilience after the referendum - seen driven largely by consumer spending - may have been temporary.

British consumers are cutting back on non-essential spending as the impact of last year’s Brexit vote pushes up the cost of their day-to-day shopping, two surveys showed on Tuesday.

Analysts at MUFG said the pound had started reacting less to politics.

“The pound has become less sensitive to Brexit developments so far this year, which has included PM May’s keynote speech outlining more details of the government’s Brexit negotiation strategy,” they wrote in a note to clients.

“We continue to doubt that the ongoing process to soon trigger Article 50 will have a material negative impact on the pound in the near-term.” (Editing by Richard Lough)

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