Sterling hits two-week low as traders focus on Brexit talks

LONDON: Sterling slid to a two-week low against the euro on Tuesday as investors focused on the scale of the task still ahead for Britain to clinch a deal on leaving the European Union, despite progress in the talks made last week.

With thin trading and little economic data to shift interest elsewhere, focus on the next round of Brexit negotiations left the pound unable to hold on to gains reached on Monday, when a survey showed British factories matching a three-decade high for orders this month.

The falls came even after the breakthrough in divorce talks between Britain and the European Union at the end of last week that will mean the two sides can move on to discussions on trade and a transition deal.

Sterling slipped 0.3 percent to $1.3335. Against the euro, the pound weakened 0.6 percent to 88.55 pence and earlier hit a low of 88.68 pence, the weakest in a fortnight.

"The pressure we have seen against sterling today is largely reflecting remaining uncertainties around Brexit negotiations," said Alexandra Russell-Oliver, a strategist at Caxton FX.

Sterling showed little reaction to data released earlier in the day showing British employers plan to hire more workers and raise pay more quickly in 2018, but they also fear that Brexit will make the country a less attractive place to do business.

Some investors reckon sterling is likely to strengthen in the coming months, reversing this month's losses.

"The weakness of the pound, which is currently the worst performing G10 currency versus the US dollar on a month-to-date basis, is likely to be an anomaly," said MUFG currency strategist Lee Hardman, in London.

"A quick (Brexit) transition deal still appears the most likely outcome in the first quarter of 2018, a scenario which has yet to be factored into the price of the pound."

But there are still worries about political uncertainty.

British Prime Minister Theresa May told parliament her plan on Monday for a Brexit transition period with broadly the same access to EU markets was met with scepticism from pro-Brexit lawmakers fearful of a watered-down EU exit.

Last week May's fragility was exposed by the rebellion of 11 largely pro-European Conservative lawmakers in a parliamentary vote on Brexit legislation that led to an embarrassing defeat.