August 31, 2018 / 8:40 AM / 8 months ago

Sterling set for fifth straight monthly drop on Brexit nerves

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, Aug 31 (Reuters) - Sterling held near a one-month high on Friday as hopes of a breakthrough on Brexit this week prompted some traders to cut back on aggressive short bets on the British currency.

In early London trading, sterling edged higher to $1.3013, close to Thursday’s $1.3043, the highest since Aug. 3.

“Optimism concerning the outcome of the ongoing Brexit negotiations has increased following a number of events,” Morgan Stanley strategists said in a daily note.

The European Union was ready to offer Britain an unprecedentedly close relationship after it leaves, the EU negotiator, Michel Barnier, said on Wednesday. British Brexit minister Dominic Raab is due to meet Barnier in Brussels on Friday in an attempt to speed up their talks.

Despite this week’s gains, sterling is set to register its fifth consecutive monthly. Foreigners’ net holdings of British government debt fell by a record amount last month, a move partly driven by a large volume of maturing bonds but one that also revived concerns about the effect of Brexit on investor demand.

Against the euro, the British currency slipped to 89.71 pence, well below the 2018 high of 86.2 pence hit in April.

Despite Brexit talks hopes, investors were wary of buying the currency aggressively as underlying economic weaknesses remained.

Britain has one of the highest current account deficits as a percentage of GDP in the developed world, and data this week showed companies growing more worried about a no-deal Brexit . (Reporting by Saikat Chatterjee, editing by Larry King)

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