March 2, 2018 / 9:22 AM / 22 days ago

Sterling steadies near 7-week low as traders eye Brexit speech

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote

By Jemima Kelly

LONDON, March 2 (Reuters) - Sterling steadied close to a seven-week low against the dollar on Friday, as traders eyed a speech from Prime Minister Theresa May on her plans for a trade deal with the European Union.

May will in the early afternoon set out her vision for a Brexit deal deeper and wider than any “free trade agreement anywhere in the world”, telling the European Union that is in their “shared interest”.

The prime minister, weak after losing her parliamentary majority last year, will struggle to satisfy the demands of EU officials and the warring factions in her Conservative party and companies desperate for clarity.

“Based on media reports on the cabinet deal reached last week, the speech may well contain lots of unrealistic scenarios that (European Council President) Donald Tusk has stated recently were based on ‘pure illusion’,” said MUFG chief global markets strategist in London, Derek Halpenny.

“If that’s the case today, we may well see further pound selling. The time has come for credible details and proposals and if that’s not forthcoming today it may lower expectations of progress going into the EU leaders’ summit when the UK wants a transition deal confirmed,” he said.

Worries that Britain might not secure the post-Brexit transition period that it wants by the end of March have knocked sterling this week, with the EU’s chief negotiator Michel Barnier saying a deal on that was not guaranteed.

The pound has struggled to build on a rally earlier this year amid a resurgence in political risk centred on Brexit and a broad rebound in the dollar. It suffered its worst month since October 2016 in February, as the greenback strengthened across the board.

On Friday it was flat at $1.3777, close to a seven-week low of $1.3712 touched on Thursday.

Against the euro, it hit a two-week low of 89.16 pence .

A purchasing managers’ index (PMI) from the construction sector was due at 0930 GMT but was not seen as likely to impact sterling much because of the focus on May’s speech. The PMI for the services sector is due on Monday.

“(May’s speech) could contain some early indications that a compromise is drawing near,” wrote Credit Agricole strategists in a note to clients. “This, together with the upcoming data releases out of the UK, could help investors turn their attention away from the Brexit headlines.”

“Needless to say, if, instead, the prime minister chooses to escalate the ‘game of brinkmanship’ with Brussels, sterling should remain vulnerable to further selloff against the resurgent dollar and yen.”

Editing by Janet Lawrence

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