October 3, 2016 / 8:26 AM / 10 months ago

FOREX-Sterling hits 3-year low vs euro as Brexit deadline set

4 Min Read

* Sterling within half a U.S. cent of 31-year low

* PM May says divorce process to begin by March

* Deadline seen removing any lingering doubts Brexit will happen

By Jemima Kelly

LONDON, Oct 3 (Reuters) - Sterling slid to a three-year low against the euro and a three-month low versus the dollar on Monday, after a March deadline was set for the start of the formal process that will split Britain from the European Union.

Britain's Prime Minister Theresa May told her Conservative party's annual conference on Sunday that she was determined to move on with the process and win the "right deal", in a move to ease fears inside her party that she may delay the divorce.

Triggering Article 50 of the EU's Lisbon Treaty will give Britain a two-year period to clinch one of the most complex deals in Europe since World War Two, and will redefine the country's ties with its biggest trading partner.

Sterling, having just posted its worst run of quarterly losses since 1984, skidded more than 1 percent against the dollar to $1.2845. That left it less than half a cent away from the 31-year low it plumbed in early July, shortly after the shock June 23 vote to leave the EU.

The pound also shed 1 percent against the euro to hit 87.48 pence, its weakest since August 2013.

"The fact that May has confirmed the timings for the triggering of Article 50 took away any lingering doubts and any lingering supportive elements for the currency, whereby...we could pretend nothing was going on," said UBS Wealth Management currency strategist Geoffrey Yu.

"Markets are fundamentally seeing Brexit as negative for the pound... and now we know it's definitely going to happen, there's more short-term or medium-term risk for the currency, but how it's really going to play out remains to be seen."

Yu added that sterling's performance over the coming months would be determined by whether it looked as if Britain would undergo a "hard Brexit" - a total split from the EU and its single market that some fear could drive an exodus of banks from London.

Forecasts for the pound after the vote were almost universally bleak. A number of major banks predicted a fall to around $1.20, levels not seen since the Plaza Accord's move to weaken the dollar in the mid-1980s, but it has so far held up better than that, bottoming out in early July at $1.2798.

"From (May's) comments it appears that next year it is going to be very volatile and the British currency may face a large move on any given day especially when it comes to conceptions and translations about Brexit," said Think Forex analyst Naeem Aslam.

"A harder Brexit may punish the currency more, and if the economic data starts to fall off the cliff, it may actually push the politicians to strike for a softer Brexit."

Deutsche Bank Settlement

Elsewhere, risk sentiment benefited from news that Deutsche Bank was attempting to negotiate a much smaller fine with the U.S. Department of Justice, though no formal settlement has been announced yet.

The DOJ fined Germany's largest bank $14 billion earlier in September for what it alleged were sales of toxic mortgage-backed securities.

"I think the Deutsche headline risk is still there. It's not finished yet, with many things yet to be revealed," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. "Cross your fingers that this rangebound trade continues."

The euro edged down 0.1 percent to $1.1237, remaining well above Friday's low of $1.1153 hit before hopes of a reduced Deutsche settlement pulled it higher.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Tokyo markets team; Editing by Jon Boyle)

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