November 28, 2018 / 9:21 AM / 7 months ago

Sterling near two-week lows as Brexit warnings eyed

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, Nov 28 (Reuters) - Sterling traded near a two-week low on Wednesday as investors prepared for warnings from the government and the central bank on how much damage a no-deal Brexit would do to the struggling British economy.

Barely four months before Britain is due to leave the European Union, Prime Minister Theresa May has failed to get much support from parliament for the agreement sealed with EU leaders on Sunday. The possibility of a no-deal Brexit sent the pound to a two-week low on Tuesday.

The government’s economic-impact report is expected during the morning session. A Bank of England analysis on Brexit’s implications will follow later in the day.

In early London trading, the pound was at $1.2740, just above the previous session’s $1.2725. It was up 0.1 percent at 88.50 pence against the euro.

The Daily Telegraph said Wednesday’s report from the government would show that in a scenario resembling May’s plan, Britain’s economy would be 1 to 2 percent smaller in 15 years than it would be if the country remained in the EU. With no deal, it would be 7.6 percent smaller.

“The currency market is trying to figure out one thing and that’s the long-term economic outlook for the UK,” said Kallum Pickering, a senior economist at Berenberg. “It matters what numbers the BoE or government come up with, but I wouldn’t expect a scary number to effect sterling too much.”

Pickering added that the outlook for sterling was likely to become much clearer once parliament votes on the Brexit deal next month.

Prospects of a negotiated exit from the European Union have restored some calm to the currency markets. Implied volatility on the currency, a gauge of expected swings, retreated from a post-Brexit referendum vote peak of 15 percent reached earlier this month.

Outright short positions on the pound have also nearly halved in recent weeks to a net short position of $3.4 billion, according to latest futures positioning data. (Reporting by Dhara Ranasinghe, editing by Larry King)

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