LONDON, Jan 6 (Reuters) - Sterling fell back against a dollar that was boosted by U.S. labour market data on Friday but still ended the week slightly higher, riding out nerves about the British government’s preparations for Brexit talks due to start in March.
Prime Minister Theresa May is expected to try and quash charges of indecisiveness - The Economist’s front page this week calls her “Theresa Maybe” - with a speech later this month outlining her central aims for talks with the other 27 members of the European Union.
There may be little comfort in that for financial investors, however, with British newspapers reporting the speech will make control of immigration a red line that will not be sacrificed in return for membership of the EU single market.
Worries about a big economic hit as a result of such a stance have been at the heart of sales of sterling since the referendum vote to leave the EU last June. Yet, helped by better-than-expected economic data, the currency has proved fairly robust since early November.
It hit a 2-1/2-week high of $1.2432 on Thursday, and though it was over a cent lower than that on Friday at around $1.2310 it was still up about 0.3 percent on the week.
“This is mostly a dollar move - in terms of data flow there’s been nothing from the UK that’s really caught the market’s attention,” said BNP Paribas currency analyst Sam Lynton-Brown.
The dollar received a boost when data showed a rebound in wages that, despite U.S. employment increasing less than expected in December, pointed to sustained labour market momentum. That likely sets up the economy for stronger growth and further interest rate increases from the Federal Reserve this year.
The greenback’s strength explained sterling’s weakness in that currency pair, but the pound was also down half a percent against the euro at 85.77 pence.
Strategists said this could be partly due to position adjustment ahead of the weekend, as well as continued Brexit uncertainty.
“Brexit remains a dominant theme for the direction of the pound,” said Derek Halpenny, head of global market research at Japan’s MUFG in London.
He said that as important as the government’s stance on immigration and the single market would be whether May puts more emphasis on seeking a longer transitional period to smooth an exit that would otherwise be due within two years of starting talks.
“The longer the transition, the less concerned markets should be over negative implications, which should help support the pound,” he said. (Editing by Richard Lough)