July 10, 2018 / 12:39 AM / 3 months ago

FOREX-British pound frail after key eurosceptic ministers quit

* Sterling near 4-month low vs euro after Johnson, Davis quit

* Markets have poor record of price in UK political risks - BNY

* Dollar lacks momentum after Friday’s soft U.S. wages data

By Hideyuki Sano

TOKYO, July 10 (Reuters) - The British pound was frail on Tuesday after the departure of two key eurosceptic ministers raised worries about a “hard Brexit” while the dollar stood near three-week lows against its rivals after data showed soft U.S. wage growth.

Sterling stood at $1.3253, having fallen to as low as $1.3189 on Monday, after Prime Minister Theresa May’s foreign minister and Brexit negotiator quit in protest at her plans to keep close trade ties with the European Union.

The currency regained some ground after several Conservative lawmakers said May is likely safe from a leadership challenge despite the resignation of Boris Johnson and Brexit minister David Davis.

Still, their departures shatter May’s own proclamation of cabinet unity last Friday, when she said she believed she had, after two years of wrangling, secured agreement on Britain’s biggest foreign and trading policy shift in almost half a century.

Simon Derrick, London-based chief currency strategist at BNY Mellon, said the next few weeks could prove decisive, noting that financial markets have a poor track record of pricing in UK political risks, not to mention the 2016 Brexit referendum.

“Current thinking is that May would win a party confidence vote. However, there is a risk that were May to make further compromises in the negotiations with Brussels, more hard line Conservative MPs might be theoretically prepared to abstain or even vote against her in a no confidence vote in Parliament,” he said.

Against the euro, the pound hit a four-month low of 89.025 pence per euro on Monday, and last stood at 88.70.

“While the expectations that the Bank of England might hike interest rates in the summer underpin the sterling, political uncertainties in UK are weighing on the currency,” said Shinichiro Kadota, senior FX and rates strategist at Barclays.

The dollar’s index against a basket of six major currencies fell to as lower as 93.711 on Monday, its lowest since mid-June, and last stood at 94.088.

The dollar was not helped by Friday’s data showing U.S. wage growth remained tame despite tight labour market.

As the greenback lacked momentum, the euro held firm, trading at $1.1751, not far from three-week highs of $1.17905 touched on Monday.

The common currency strengthened to one-month high of 1.16565 Swiss franc on Monday. Against the yen, it rose to a seven-week high of 130.55 yen.

The dollar traded at 110.98 yen, up slightly but stuck in its familiar range in the past month.

The Australian dollar inched up 0.15 percent to $0.7479, extending its recovery from $0.7311 touched on Monday last week. (Editing by Sam Holmes)

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