Sterling edges down; Brexit negotiations in focus

LONDON: Sterling slipped slightly on Monday, even as global risk appetite was boosted by strong Chinese economic data and news of progress on a COVID-19 vaccine, as investors focused on Brexit negotiations which resumed in Brussels.

The mood in markets was lifted by stronger-than-expected Chinese factory output and news that Moderna Inc said its experimental vaccine was 94.5% effective in preventing COVID-19. European shares hit new nine-month highs.

"Broadly speaking, the risk-positive aspect of major markets is still there and I think that's going to help to support sterling," said Richard Perry, senior market analyst at Hantec.

At 1231 GMT, the pound was down 0.1% on the day at $1.3184 . Versus the euro, it slipped slightly, down 0.1% on the day at 89.755 pence per euro.

Britain officially left the EU in January but its status-quo transition period ends on Dec. 31. Both sides are trying to reach a deal before that to govern nearly 1 trillion dollars in annual trade.

A senior EU official said on Monday it was getting "terribly late" to seal a new trade deal with Britain. Ireland's foreign minister said that there would be trouble if a breakthrough was not made in the next week to 10 days.

Britain's health secretary Matt Hancock said on Monday that the UK's red lines in the negotiations had not changed, while Prime Minister Boris Johnson said in a statement that Britain will prosper even without a deal.

Hantec's Perry said that market participants expect a deal to be reached.

"We're fairly positive. There's no real reason at the moment to think that the two sides are not moving towards an agreement," he said.

"It seems as though the market is positioning for a deal at some stage."

Some analysts said the recent departure of Dominic Cummings, Prime Minister Boris Johnson's top advisor and Brexit campaigner, was a positive development, which could lead to Britain being more willing to compromise.

ING strategists, in a note to clients, said that while prospects for a deal looked slightly brighter, the core issues remained largely unresolved and time to reach an agreement was running out.

"While we see officials suggesting more than one week may still be needed, the technical time for ratification in the EU and UK is dangerously shrinking," they added. "In light of this, we could see both parts rushing into a deal already this week."

A survey showed that nearly half of small and medium-sized British manufacturers have no idea how the end of the transition period will affect their business.

Elsewhere, Prime Minister Boris Johnson said he was self-isolating after coming into contact with someone with COVID-19. He said in a video tweet that he was in good health.