April 24, 2018 / 8:30 AM / a month ago

Sterling falls to five-week low on dollar rebound, Brexit nerves

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, April 24 (Reuters) - Sterling fell on Tuesday to its lowest since mid-March, its sixth consecutive daily fall, as the dollar rebounded and investors worried about the performance of the British economy.

April has historically proved to be supportive for the pound because of a seasonal rise in capital inflows into Britain from foreign companies paying UK shareholders dividends.

But last week, sterling fell almost 1.7 percent on weaker-than-expected data and cautious comments from Bank of England Governor Mark Carney that slashed market expectations for a May rate hike.

The pound continued to languish on Tuesday and fell 0.1 percent to as low as $1.3919, its lowest since March 19, in part because of a broadly stronger dollar, analysts said.

“Rising U.S. yields have given the dollar a powerful lift in recent days. If the U.S. dollar were to stage a significant further rally, cable could be among the worst casualties,” said Societe Generale currency strategist Alvin Tan.

Against the euro, the pound recovered and rose 0.1 percent to 87.505 pence.

Analysts said they would watch gross domestic product figures due later in the week for signs of how the economy was holding up and whether it pointed to a BoE ready to hike rates.

BREXIT UNCERTAINTY

A resurfacing of worries about Brexit also sapped at the pound, which has been one of the best performing major currencies in 2018.

Britain’s upper house of parliament handed the government its third defeat over Brexit in less than a week on Monday, voting down plans not to retain EU rights in national law before Britain leaves the bloc.

The cross-party vote was technical and non-binding but shows the deep divisions over Brexit across the Houses of Parliament and adds to speculation that Prime Minister Theresa May’s leadership could come under threat.

“There has been a clear pick-up in news reports over the difficulty the government faces in following through on their plans to leave the EU customs union,” MUFG economists said in a note, adding that the impact on the pound so far appeared limited.

The market is now pricing in a less than 50 percent chance of a rate hike at a May 10 BoE meeting, down from more than 80 percent a fortnight ago. (Reporting by Tom Finn; Editing by Kevin Liffey)

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