* Sterling drops 1 percent vs dlr, euro after PM Brexit
* Dollar climbs against yen, euro after early Europe wobble
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Jan 9 Talk of Britain drastically
reworking trade ties with the European Union after Brexit sent
the pound tumbling to two-month lows on Monday, as signals that
U.S. interest rates could rise three times this year lifted the
The pound slid over 1 percent against both the dollar
and the euro after weekend comments from
British Prime Minister Theresa May that she was not interested
in keeping "bits of membership" of the European Union.
May said she instead wanted a bespoke deal and also denied
criticism that she was "muddled" in the pursuit of what she
called the right relationship with the EU, the country's largest
Sterling slid as low as $1.2125, its weakest against the
dollar since the end of October. It fell 1.1 percent against the
euro too, hitting 86.65 pence per euro, the lowest since
"We think it was the prime minister prioritizing immigration
over a trade deal that pulled the run from under sterling," said
National Australia Bank's head of markets strategy, Nick
"The optimism in late November, early December had been
based on an apparent desire to secure a trade deal and yesterday
was a marked shift (from) that," he added, saying the next
threshold to watch for the pound was $1.2083.
The dollar crept ahead after signs of wage pressure in the
December U.S. jobs report on Friday proved enough to lift
10-year Treasury yields from 2.33 percent to 2.42 percent after
a sizable fall earlier in the week.
Chicago Federal Reserve President Charles Evans, who is a
voting Fed member this year, also lent support, saying U.S
interest rates could go up three times this year, faster than he
expected a few months ago.
The dollar index, which measures the greenback against six
top currencies, was up 0.2 percent at 102.43 ahead of
U.S. share trading in which the Dow Jones was again eyeing
The euro initially held up after Germany reported the
steepest monthly rise in exports in four-and-half years, but the
resistance faded and it sagged a few cents to $1.0518 having
ricocheted between $1.0339 and $1.0621 last week.
"If we have seen the low in U.S. Treasury yields then
potentially the dollar could come back quite strongly," said
Saxo Bank's head of FX strategy John Hardy.
"It all depends on Trump and how aggressive he is in his
first days in office."
The president-elect is due to be sworn in on Jan. 20 but
this week there will be Senate confirmation hearings for a
number of his top administration nominees, including secretary
of state and attorney general, that should provide a test of his
ability to work with fellow Republicans in Congress.
Two non-voting Fed presidents will speak later on Monday,
and five speeches are lined up for Thursday. The main economic
release of the week is not until Friday, when retail sales
figures for December are out.
Dealers in Asia will be keeping an eye on the yuan
after Beijing engineered a sharp tightening in liquidity last
week that squeezed speculators out of short yuan/long dollar
China's central bank kept up the pressure on Monday, setting
a firmer fix for the yuan than many had expected at 6.9262 per
dollar, even though that was down from the previous fix.
Yet the defence is proving costly.
Figures out over the weekend showed China's foreign exchange
reserves fell to nearly six-year lows in December as Beijing
fought to stem an outflow of capital that could ultimately force
another devaluation of the currency.
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 Wayne Cole in Sydney; Editing by Toby
Chopra and John Stonestreet)