February 28, 2017 / 5:11 PM / 9 months ago

Sterling slips as investors brace for Trump speech

* 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 Ritvik Carvalho and Jemima Kelly

LONDON, Feb 28 (Reuters) - Sterling fell against the dollar on Tuesday ahead of a speech by U.S. President Donald Trump and as worries about Britain’s future when it leaves the European Union.

The pound fell to as low as $1.2384 on Monday, its weakest in a fortnight, on reports that Scottish nationalists were preparing to demand a fresh independence referendum, an announcement possibly as early as March to coincide with the government’s plan to formally trigger Britain’s exit from the EU.

The currency stayed close to the low in choppy trade on Tuesday afternoon in London, last trading 0.1 percent down at $1.2428. Investors turned their focus to the United States, where Trump was due to address a joint session of the U.S. Congress.

Despite the dollar weakening against most currencies ahead of Trump’s speech, which investors will watch closely for fresh details on his economic plans, sterling was kept under pressure by worries about the fallout from Brexit. It was down 0.4 percent at 84.45 pence per euro.

Scottish First Minister Nicola Sturgeon said on Tuesday that the “sheer intransigence” of the British government over Brexit could lead to a second referendum on independence.

“While there is no firm evidence to suggest that Scotland is on track to leave the Union, on the back of Brexit-related uncertainty we continue to see sterling as a vulnerable currency,” Rabobank strategists wrote in a note to clients.

ING currency strategist Viraj Patel described a possible second independence referendum as one of a number of Brexit “tail risks”. But he said negotiations over Britain’s exit from the bloc - and not a possible Scottish exit - would be the key driver of the pound in the months to come.

“Our economists just don’t see Westminster accepting a second referendum at least in the next 6 to 12 months,” he said. “They don’t want to be battling on two fronts.”

New Bank of England Deputy Governor Charlotte Hogg said on Tuesday that her tolerance for above-target inflation would depend on events, and that she would be willing to stand up to Governor Mark Carney if she did not agree with him.

Surveys showed earlier on Tuesday that British consumer morale sunk lower in February as rising inflation following last year’s Brexit vote made householders warier about the outlook for their finances. (Editing by Jeremy Gaunt)

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