Sterling edges down on Brexit, BoE uncertainty

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LONDON (Reuters) – Sterling slipped against the euro and dollar on Tuesday on uncertainty over whether the Bank of England will hike interest rates next week as well as over the state of Brexit negotiations.

Despite getting a modest boost from signs of progress in discussions over Britain’s departure from the European Union in recent days, longer-term worries and uncertainty over the BoE’s rate outlook has curbed any major gains for the pound.

BoE Deputy Governor Jon Cunliffe again raised doubts about whether he would back a rate rise next week, describing it as an “open question” in an interview published by a Welsh newspaper on Monday.

“We’ve had more cautious comments out from…Cunliffe, so some hesitation perhaps from markets on pricing that in too fully,” said Alexandra Russell-Oliver, analyst at UK-based foreign exchange provider Caxton FX.

“Now it’s more the possibility of a rate hike, rather than the likelihood that markets had been pricing in previously.”

European Commission President Jean-Claude Juncker said on Tuesday that the bloc is not negotiating with London in a hostile way and assumes that the EU and Britain will reach a fair deal on Brexit.

British Prime Minister Theresa May said on Monday she was “ambitious and positive” about the progress of Brexit talks and the country’s future in general, describing the latest discussions as being conducted in a “constructive spirit”.

But investors are still cautious.

“Sentiment seems to have softened a bit on the back of the EU Summit, but from a broader perspective we still have disagreements,” said Manuel Oliveri, currency strategist at Credit Agricole.

Sterling slipped 0.2 percent to $1.3173, not far from an 11-day low of $1.3087 hit on Friday.

Against the euro it was trading down 0.3 percent at 89.26 pence, also close to a 10-day low of 90.22 pence hit on Friday.

Investors are waiting for third-quarter GDP data for Britain due on Wednesday for clues on the health of the economy and any doubts that may lead to about an interest rate hike.

Preliminary data is expected to show that GDP grew by 0.3 percent in the third quarter, the same slow quarterly growth as in the previous three months.