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Sterling rises against weaker dollar despite Brexit worries
October 12, 2017 / 8:43 AM / in 6 days

Sterling rises against weaker dollar despite Brexit worries

* Graphic: sterling and gilt yields bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

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

By Fanny Potkin

LONDON, Oct 12 (Reuters) - Sterling edged higher on Thursday against a tepid dollar, despite a backdrop of uncertain Brexit negotiations.

Signals from the U.S. Federal Reserve that central bankers were still concerned about persistently low inflation helped bump the pound to $1.3244, its highest point since October 4th.

“The cable’s gains have been driven primarily by weakness in the dollar rather than strength in the pound,” said Fawad Razaqzada, a market analyst at Forex.com.

“For now, the GBP/USD is somewhat directionless,” he said, noting that the direction of the pound should become clearer once key British domestic inflation and jobs data and the U.S. CPI are published.

Noises around Brexit negotiations grew louder after British finance minister Philip Hammond declared on Wednesday the value of a transitional deal would decline rapidly if were to drag into next year, but said it was too soon to spend money on contingency plans.

Strategists said the speech had only minimal impact, with markets more focused on the strong British data this week and broad expectations of interest rate hikes baked into the currency markets.

“Unless we see a meaningful collapse in Brexit talks – and evidence that we are veering towards the cliff-edge scenario – we are unlikely to see any immediate impact on GBP spot price action,” said Viraj Patel, an FX strategist at ING.

Brexit Secretary David Davis and EU negotiator Michel Barnier are due to give a news conference around noon (1000 GMT) on Thursday, but little progress is expected.

Instead, the pound has hemmed in tight trading ranges as investors fretted that a sharp turnaround in sterling in the currency markets to net long positions may come under pressure.

Futures markets are pricing in 50 basis points of Bank of England rate increases over the next year.

Data from the Royal Institution of Chartered Surveyors showed on Thursday that British house prices face the weakest outlook since the Brexit vote and can be interpreted as another sign of a slowing domestic economy.

“The real wealth squeeze that this implies will further constrain domestic demand, which is already showing significant signs of weakening as real incomes are squeezed,” wrote strategist Adam Cole in a note for RBC.

The pound was broadly unchanged against the euro at 0.89575. (Reporting by Fanny Potkin; Editing by Gareth Jones)

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