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UPDATE 2-Sterling dips below $1.28 for first time since June
August 23, 2017 / 8:44 AM / 3 months ago

UPDATE 2-Sterling dips below $1.28 for first time since June

(Adds more comment from currency fund manager)

By Patrick Graham

LONDON, Aug 23 (Reuters) - Sterling fell below $1.28 for the first time since late June on Wednesday and deepened recent losses against the euro.

Concerns about Britain’s economic prospects and the Brexit process encouraged investors to push the pound lower.

The government is striving to move forward the formal discussions on leaving the European Union with a series of position papers that have outlined potential compromises over some of the issues likely to block progress this year.

Analysts again praised signs from another paper on Wednesday that Prime Minister Theresa May was seeking ways to resolve an argument over the influence of EU courts after Britain leaves, but markets have so far been unimpressed.

In trade-weighted terms, the pound is down around 3 percent since the start of August.

“We believe that some cautiousness may be warranted, however, given that the latest bout of GBP-weakness has brought it into undervalued territory against both (the euro and dollar),” Credit Agricole analysts wrote in a note to clients.

“(But the euro has) hit yet another multi-month high with the recent price action suggesting that investors are still very comfortable being long the cross despite its lofty levels.”

Sterling was trading at $1.2787, its weakest since June 28.

Against the euro it fell more than half a percent to 92.24 pence. Apart from levels hit during a short-lived overnight “flash crash” in October, that was its weakest in eight years.

Currency managers Adrian Lee and Partners forecast sterling would weaken further against both the dollar and euro over the next six months.

“The uncertainty over the form of the UK’s future relationship with the EU is expected to hang over the economy in the coming years and will cause a reduction of inward foreign investment flows,” they said in a regular outlook.

“These factors will keep sterling under pressure in the medium term.”

The fund firm forecast the pound to weaken another 4 percent to $1.24 over the next half a year and 2 percent to 94 pence per euro.

The government document published on Wednesday contained language which analysts and British media read as leaving the door open to the European Court of Justice maintaining influence over UK cases.

Sterling kept falling after U.S. markets opened.

“We think it’s too early in the cycle for Brexit details to have a dramatic effect on the pound,” said Bank of Montreal strategist Stephen Gallo.

“But there hasn’t been any real progress from Brexit negotiators on shifting the discussions from exit conditions over to trade.”

Reporting by Patrick Graham, Editing by Saikat Chatterjee/Jeremy Gaunt

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