* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Dec 21 Sterling edged close to a
one-month low against the dollar on Wednesday, kept under
pressure by uncertainty over Brexit negotiations and by a
greenback buoyed by expectations for faster U.S. monetary
tightening than previously forecast.
Data showing Britain's public finances with a slightly
bigger-than-expected deficit in November - but on track to meet
new, less ambitious deficit reduction goals - had little impact
on the pound, which was trading down 0.3 percent on the day at
Sterling has for the past six months been less sensitive
than usual to economic data, driven more by concerns over
Britain's departure from the EU. Any signs that a hard Brexit,
in which Britain loses access to the single market, is on the
cards have tended to drive down the currency, with signs to the
contrary giving it a boost.
But while an easing of concerns over a hard Brexit had led
to a 5 percent recovery in sterling against the dollar between
mid-October and mid-December, after a court ruled that the
government could not trigger formal Brexit talks without
parliamentary approval, that rebound was ended abruptly last
Wednesday by the U.S. Federal Reserve.
After hiking interest rates for the first time in a year,
the Fed indicated that rates could rise as many as three times
in 2017, having flagged just two likely hikes in September. That
sent the dollar soaring, with sterling losing almost 3 percent
against the greenback since then.
Against the euro, though it has slipped a little this week
and was down 0.3 percent on Wednesday at 84.31 pence, the pound
is still close to five-month highs of 83.05 pence touched
earlier this month.
"I think the dollar has played a very large role in where
cable (sterling/dollar) is trading," said Barclays currency
strategist Hamish Pepper. "If we're talking about UK
idiosyncratic developments, I think euro/sterling is a better
"Given where we were in early November - essentially at 90
pence or above - that reflects the fact that there's been a
general move away from that hard Brexit scenario."
On a trade-weighted basis, the pound is still trading over
10 percent more weakly than where it was trading six months ago,
just before June's vote for Brexit.
British Prime Minister Theresa May said earlier this week
that there might be a period of adjustment - an "implementation
phase" - after Britain leaves the EU. That came after finance
minister Philip Hammond last week backed the idea of a
transition period - a phrase May seemed keen not to use.
"The Prime Minister's confirmation is important in our view,
as it eases some uncertainty around the UK's future negotiating
position, and diminishes somewhat the likelihood that we may be
headed for a 'hard Brexit'," wrote IronFX analyst
(Editing by Toby Chopra)