* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Abhinav Ramnarayan
LONDON, Dec 13 Sterling rose on Tuesday as
investors awaited British inflation data for November, helped by
finance minister Philip Hammond's comments supporting a
staggered transition period for the country's exit from the
Hammond backed the idea on Monday of a transition period to
smooth the Brexit process and said EU countries also stood to
gain from a gradual British withdrawal.
That drove sterling as high as $1.27 overnight and it was
trading 0.1 percent stronger on the day in early deals in London
"Given this optimistic sentiment regarding a smooth divorce
with the EU, we expect cable to continue trading higher for a
while, at least ahead of the Bank of England policy meeting on
Thursday," said IronFX analyst Charalambos Pissouros.
Hammond's remarks are the latest to strengthen investor
hopes for a "soft Brexit" that prioritises maintaining strong
economic ties with Europe over the need for strong immigration
Pissouros and others said sterling could breach the $1.2700
level again although much would depend on how the dollar
performs in the run-in to Wednesday's Federal Reserve policy
statement, widely expected to raise interest rates for the first
time in a year.
Before then, eyes will be on domestic inflation figures at
0930 GMT on Tuesday, expected to show a slight annual rise in
consumer prices to 1.1 percent in November.
Many economists expect prices to come under more pressure
next year as sterling's weakness feeds through to the cost of
imports, but market pricing suggests UK interest rates will be
on hold until the end of 2018 given the economic risks of the
"If inflation runs above target and consumption manages to
hold up, then a delay of nearly two years before raising rates
could seem excessive," said City Index head of research,
Kathleen Brooks. "Thus, a higher than expected CPI reading today
could lead to a readjustment in the UK rate markets."
(Editing by Patrick Graham and Catherine Evans)