Sterling inches higher but Brexit overshadows robust GDP

LONDON: Sterling traded modestly higher against the dollar and euro on Monday as Brexit concerns overshadowed data showing the British economy posting its fastest growth in almost a year.

The British currency had last week posted its biggest weekly drop in a month, tumbling 0.3 percent to the dollar but it firmed around a fifth of a percent earlier on Monday, after U.S. data revealed speculators had trimmed long dollar positions, benefiting sterling and the euro.

By 1300 GMT, the pound traded 0.2 percent higher  at $1.2943, well off a session high of $1.2954.

Against the euro, the British currency was broadly flat at 89.44 pence, after earlier touching 89.57 pence.

The pound shrugged off data showing gross domestic product in the three months to July was 0.6 percent higher than in the previous three-month period, gathering pace from 0.4 percent growth in the three months to June - and at the top end of forecasts.

"Normally we would have seen that kind of GDP print drive sterling half a percent higher. That there was little reaction is telling of the environment we are in, where politics is the key driver for sterling," ING Bank FX strategist Viraj Patel said.

Sterling has rallied in recent weeks off lows below $1.27, lifted by seemingly favourable comments from European Union Brexit negotiator Michel Barnier. On Friday he was quoted as saying the EU was open to discussing other "backstops" on Brexit, especially the Irish border issue.

But sentiment was hit again by warnings from a former junior minister, Steve Baker, that the ruling Conservative Party could face a split if Prime Minister Theresa May persisted with her "Chequers" proposals on Brexit.

Baker said 80 or more lawmakers were prepared to vote against the plan.

The comments, indicating the level of opposition within the party, came a day after former foreign minister, Boris Johnson, described part of the plan as "a suicide vest".

"Westminster is going to be a cloud over sterling before the Tory conference," Patel said, referring to the party gathering starting on Sept 30. "We've had some good headlines recently (from Barnier), now investors need to see some tangible progress on Brexit."

Headlines on the progress of Brexit negotiations have forced traders to switch positions rapidly in a currency market that is broadly short on the pound, based on positioning data.

Reuters polls show sterling rising as much as six percent in a year, but a Brexit without any deal between London and Brussels could push it as much as eight percent lower from current levels.