Sterling close to 2020 lows as Brexit uncertainty lingers, 4Q GDP data on radar

• Sterling was last trading just above $1.29, close to the 2-1/2-month low of $1.2873 it fell to on Monday.
• The cost for sterling overnight options remained low, suggesting market participants were not expecting major fluctuations in the currency levels.

LONDON: The pound was hovering Tuesday around its lowest levels for this year as traders remained unsure of Britain's future trade relationship with the European Union as well as about Bank of England's future steps.

Preliminary data for the fourth-quarter gross domestic product was due at 0930 GMT, but analysts say the data was unlikely to shine light on whether the BoE was ready to inject more stimulus into the economy as at the last meeting officials signalled they are more interested in seeing if growth picks up after the December election.

Economists polled by Reuters forecast zero quarter-on-quarter growth, compared with a 0.4pc increase in the third quarter.

Other economic data, such as industrial and manufacturing output, are also due to be released.

"Unless economic growth comes in materially weaker than expected in Q4, the report is unlikely to prompt the BoE to more seriously consider lowering rates," said Lee Hardman, currency analyst at MUFG.

Hardman added, however, that "uncertainty over the UK's future trading relationships post-Brexit remain a dampener on further upside potential for the pound."

The British government has demanded the EU sign up to an agreement which will ensure the City of London can maintain access to the European financial market after Brexit.

Analysts say that Britain is likely to struggle to secure an unprecedented "permanent equivalence" deal for its financial services.

Sterling was last trading just above $1.29, close to the 2-1/2-month low of $1.2873 it fell to on Monday, mostly on the back of a strong dollar. Against the euro, the pound was more resilient, trading neutral at 84.57 pence.

The cost for sterling overnight options remained low, suggesting market participants were not expecting major fluctuations in the currency levels on the back of a swathe of UK data Tuesday.