October 16, 2017 / 4:21 PM / 5 months ago

Sterling steadies as Brexit worries offset BoE expectations

* 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 Jemima Kelly

LONDON, Oct 16 (Reuters) - The pound steadied on Monday, falling back from a four-week high against the euro as bets that upbeat data this week would put the Bank of England on track for a rate rise by year-end were offset by concerns over Britain’s exit from the European Union.

Prime Minister Theresa May is unlikely to offer new concessions to Brussels over the terms of Britain’s divorce from the EU when she meets European Commission chief Jean-Claude Juncker over dinner on Monday, her spokesman indicated.

Having traded above $1.33, close to its strongest in two weeks, the pound skidded to as low as $1.3246 in the early afternoon in London, with traders attributing the move to a Bloomberg report that Brexit negotiations could be set to break down.

Sterling later recovered most of those losses, with strategists saying that although the headline triggered a knee-jerk reaction to sell the pound, there was nothing new in the report that should have a material and lasting impact.

“We every day have to try to apply an ‘is this new news’ filter to media stories,” said Jordan Rochester, a currency strategist at Nomura.

“Today the story was closer to an opinion piece than substantial fact. We know the Brexit talks are struggling, so I don’t know why the market moves on these headlines as much as it does,” he said, adding that sterling was likely to be more sensitive to positive Brexit developments than negative news.

By 1538 GMT, the pound was flat at $1.3278, and at 88.93 pence per euro.

Sterling recorded its strongest week in four against the dollar in volatile trade last week, with the currency subject to big price swings on apparently conflicting reports on Brexit negotiations.

Societe Generale macro strategist Kit Juckes said this was “not a good week to short the pound”, given several data releases that could paint an upbeat picture of the UK economy, and because BoE Governor Mark Carney was likely to strike a hawkish tone when appearing in front of the Treasury Select Committee on Tuesday.

Data on Friday showed speculators trimmed their long positions on the pound - bets that it would rise - in the week to last Tuesday. But they were net-long on the currency for a third week running, having been short for almost two years.

That turnaround in positioning has been driven largely by a repricing of Bank of England interest rate expectations, after the BoE last month hinted rates could rise as soon as November.

Inflation data due on Tuesday is expected to show consumer price growth hitting a five-year high of 2.8 percent year-on-year, which would firm up expectations of a near-term hike. Labour market data due on Wednesday will also be closely watched, as will retail sales numbers on Thursday. (Editing by John Stonestreet and Dale Hudson)

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