June 25, 2018 / 3:49 PM / 5 months ago

Sterling edges higher as dollar weakness spreads; EU summit eyed

LONDON (Reuters) - Sterling edged higher from the day’s lows on the back of a weaker dollar as worries about rising trade tensions between the United States and other leading economies kept risk appetite in check.

FILE PHOTO: UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic

But broad moves were limited before a crucial EU summit this week as investors booked profits from a short rally after a Bank of England meeting last week revived expectations of a rate hike in the coming months.

The central bank kept interest rates on hold but the decision by chief economist Andy Haldane to join two other policymakers in calling for rates to rise to 0.75 percent lifted the pound off a seven-month low as expectations grew that the BoE could tighten policy in August.

With net long sterling positions for the week ending June 19 posting their biggest drop since October 2016, Haldane’s vote gave an unexpected boost to struggling sterling bulls sending the British currency higher.

“The positioning data doesn’t take into account the BoE’s meeting and leveraged funds are likely to have brought back sterling since then as expectations of a rate hike are still on the cards,” said Viraj Patel, an FX strategist at ING in London.

Sterling edged 0.1 percent higher at $1.3272. In early trades, it had fallen a quarter of a percent to $1.3222, not far away from a mid-November 2017 low of $1.3102 hit last Thursday.

Markets now see more than a 50 percent likelihood of the BoE raising interest rates in August by 25 basis points and a 90 percent chance of a rate hike happening by the end of 2018.

But an EU summit on June 28-29 at which Britain is hoping to make progress in securing a favourable Brexit deal with the EU could hurt sterling, strategists say.

Prime Minister Theresa May is struggling to find a proposal on post-Brexit customs arrangements - the biggest stumbling block so far in exit talks - to take into negotiations with Brussels.

GDP data for the first quarter on Friday will also give some indication on how the economy is faring.

Nine months before Britain’s exit from the EU, the country seems to be trapped in a period of relatively low growth.

In the first quarter of 2018, the economy is expected to have grown by just 0.1 percent, the slowest rate since 2012 and matching growth rates in the previous quarter.

Reporting by Saikat Chatterjee; Editing by Keith Weir and Peter Graff

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