November 21, 2018 / 5:34 PM / 10 months ago

UPDATE 1-Sterling dips as UK's May seeks deal on EU ties in Brussels

* Pound dips below $1.28; near 89 pence vs euro

* Markets look to see if May can re-negotiate Brexit deal

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote (Adds background, Updates prices)

LONDON, Nov 21 (Reuters) - Sterling fell on Wednesday as British Prime Minister Theresa May met the European Union’s chief executive in Brussels to try to secure a blueprint for the country’s post-Brexit ties with the bloc.

All EU leaders are due to meet on Sunday to rubber-stamp the deal, consisting of Britain’s withdrawal agreement and an outline of the two sides’ new relationship after Britain exits the EU in March.

Outstanding issues include a Spanish threat to block the so-called political declaration over Gibraltar as well as problems from other states on fishing rights and future trade ties.

German Chancellor Angela Merkel said she believed a solution would be found by Sunday, despite not knowing how to resolve the Spanish objections.

But Brexit negotiations and political uncertainty in Britain remain the dominant drivers for the pound, and many analysts are cautious about its prospects.

The publication last week of a draft exit treaty sparked the biggest crisis of May’s premiership, with two cabinet ministers quitting and dozens of Conservative members of parliament calling on her to step down.

“Speculation that May can re-negotiate her withdrawal agreement with Brussels looks misplaced and instead her trip today is all about writing the non-binding political declaration that will accompany the exit,” ING analysts wrote in a client note.

May faces fierce domestic opposition to her Brexit deal, and the arithmetic is against her in a parliamentary vote she needs to win to get the agreement signed off.

Still, rebel moves to force a no-confidence vote in her leadership have fizzled and sterling has pulled away from last week’s lows of $1.2725, its weakest since late October.

On Tuesday the pound fell 0.2 percent to $1.2765, while slipping 0.3 percent against the euro to 89.23 pence .

EU envoys will meet on Thursday morning to discuss the outline of future ties. Negotiators will then look at it again at a meeting set for Friday. (Reporting by Tommy Wilkes and Tom Finn; editing by John Stonestreet and Hugh Lawson)

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