* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Patrick Graham
LONDON, March 16 Sterling retreated against the
dollar and euro on Thursday, with signs the economy is finally
slowing after last year's Brexit vote expected to weigh on the
Bank of England's message on interest rates later in the day.
Wage data on Wednesday were the latest numbers to point to a
weakening economy and the potential for growing pressure on
household spending as the weaker pound and higher oil prices
raise inflation in the months ahead.
Market pricing and the bulk of strategy notes point to
expectations the bank will stick to its plan to support growth
with loose policy through the Brexit process.
"The February message looked dovish against market pricing
and BoE expectations have flattened through February despite
moves higher in Europe and the U.S.," Citi strategist Josh
O'Byrne said in a note recommending an underweight position on
"Our base case sees neutral guidance maintained and no
changes in key views for growth and inflation. We still like
sterling shorts against the dollar."
The pound got some relief from a retreat in the dollar late
on Wednesday, but was trading a third of a percent weaker since
the U.S. close at $1.2251. It fell 0.2 percent to 87.42
pence per euro.
The politics of Brexit, as the government prepares to lodge
its formal notification of the intention to leave the European
Union, continue to weigh on the pound.
Scotland's First Minister gave markets a jolt on Monday by
demanding the right to hold a new referendum on independence
once the negotiations on the terms of Britain's departure are
concluded next year.
That adds to a growing list of political issues that dealers
say are likely to worry investors in sterling as the talks get
going over the next year.
At the same time, the victory for Dutch Prime Minister Mark
Rutte over far-right rival Geert Wilders suggests that populist
challenges to the euro this year may not be as great a danger as
markets had feared three months ago.
"Cable (the dollar exchange rate) is definitely pulling back
a little bit," said Alvin Tan, currency strategist at Societe
"I think it's largely a reaction to the fact that
euro-sterling is moving by and large a little bit higher
starting overnight and this morning based on the Dutch election
(Editing by Larry King)