October 2, 2018 / 8:31 AM / in 8 months

Sterling falls to three-week low as Tory Brexit divisions on show

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Oct 2 (Reuters) - The pound slid to a three-week low on Tuesday as investors grew anxious about a conflict over Prime Minister Theresa May’s Brexit plan escalating at a ruling Conservative Party conference.

Sterling’s fortunes are being driven by headlines about May’s proposal for Britain exiting the European Union in six months and whether she can persuade the block and key members of her own party to accept it.

Sterling spiked briefly on Monday on a Bloomberg report that the UK government could back down on customs checks between mainland Britain and Northern Ireland, a major obstacle to Brexit.

By 0815 GMT sterling had relinquished all of those gains, however, trading down 0.4 percent at $1.2989, its lowest since September 12. It was flat versus a weaker euro at 88.79 pence.

At her party’s annual conference this week, May is defending her so-called Chequers plan for leaving the EU. But critics including her ex-foreign secretary Boris Johnson who is due to talk at the Tory conference later on Tuesday are openly defying her.

“The conference is a minefield for sterling. We’re trading from headline to headline,” said WorldFirst head of FX strategy Jeremy Cook.

He said traders are most focused on clues as to whether Britain could be about to offer concessions to the EU on Ireland and other sticking points ahead of a decisive EU summit in late October.

“The bias for the pound is to the downside,” he said.

Analysts at MUFG said Monday’s relief rally suggests that “the pound is likely to trade with some volatility during the remainder of this week.”

A concern for investors and a potential downside risk for sterling is the prospect of May’s own party challenging her leadership.

May said on Tuesday she planned to remain in the job “for the long term” as she called on her party to back her plan for Brexit. (Reporting by Tom Finn, Editing by William Maclean)

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