Sterling pauses as traders await more Brexit talks

LONDON: The British pound edged higher on Tuesday as data for the UK's dominant services sector -- while still weak -- came in slightly better than expected, and investors awaited the outcome of more talks between London and Brussels over Brexit.

Britain's economy came close to stagnating again in February, underscoring concerns that Brexit uncertainty is weighing on momentum. The IHS Markit/CIPS UK Services Purchasing Managers' Index suggested the world's fifth-biggest economy would grow by just 0.1 percent in the first three months of 2019 compared with the last three of 2018.

But after touching its lowest level in January since immediately after the Brexit referendum in 2016, the services PMI edged up to 51.3 from 50.1, and a Reuters poll of economists had pointed to a weaker reading of 49.9 in February.

That helped the pound edge up into positive territory versus the dollar, at $1.3185.

It also added to its small gains versus the euro - gaining 0.2 percent to 85.91 pence.

Sterling, one of the best performing major currencies so far in 2019, rose sharply last week as investors bet a no-deal Brexit could be avoided and Britain's departure from the European Union delayed.

However, concerns about whether Prime Minister Theresa May can pass her Brexit withdrawal agreement through parliament on or before March 12 and uncertainty about the sort of Brexit Britain will have restrained the pound this week.

"My overwhelming feeling is that there is too much good news priced into sterling. The market is too complacent," said Stephen Gallo, an analyst at BMO.

Gallo believes there is a 53 percent chance of a no-deal Brexit, much higher than most banks, because a small Brexit delay does little to resolve deep divisions within May's party over the best sort of break from the EU.

May's top government lawyer heads to Brussels on Tuesday, a last-ditch bid to secure changes to a Brexit deal needed to get the agreement through parliament.

Britain is due to leave the EU in 24 days, but should May fail to secure support for her deal then parliament can vote on whether to delay the departure.

ING analysts said in a note that they expect more sterling weakness in the near-term as "Brexit uncertainty continues to weigh on UK economic prospects."