Sterling slips as Brexit worries rise before May speech

LONDON: Sterling slipped on Monday, as the prickly Irish border issue and disagreements within the UK ruling party over Brexit overshadowed signs that Britain and the European Union had settled most of their differences over a divorce deal.

British Prime Minister Theresa May is expected to tell parliament later that 95 percent of the country's divorce deal has been settled. But she will maintain opposition to the European Union's proposal for the land border with Northern Ireland.

That issue scuppered efforts to reach a Brexit deal at last week's EU summit, and a proposal to extend a status-quo transition period beyond the current proposed date of December 2021 has angered the eurosceptics in her party.

"There's a lot of discussion in the market over the possibility of a no-confidence motion against May, which has increased over the weekend," Investec economist Victoria Clarke said.

"This issue is hanging over sterling, which is (also) waiting for another steer on Brexit, likely from this address from May today."

By 0930 GMT, sterling had slipped 0.2 percent to $1.3039, as the greenback climbed back into positive territory. But the pound stayed off two-week lows touched on Friday.

Against the euro, the pound fell a quarter percent    to 88.300 pence, as the single currency was supported by Moody's decision to hold off cutting Italy's credit rating outlook to negative, a move that would have left the country at greater risk of tipping into "junk" category .

Ireland too weighed in again on Brexit, with its foreign minister telling the Irish Times that an extended transition period could not be an alternative to a "backdrop" agreement.

Brexit optimism, alongside a paring of dollar long positions, partly drove a fall in short sterling bets to a net 50,353 contracts in the latest week, versus more than 60,000 the week before, calculations by Reuters and the Commodity Futures Trading Commission showed.

But speculators also pulled back bullish bets on the dollar, which retreated against a currency basket to its lowest since Oct. 17.

"Sterling remains well supported by short covering, with sterling bears liquidating their positions in seven of the past eight weeks," Scotiabank told clients.