Sterling steadies after post-inflation slide, eyes on wage data

[LONDON] Sterling steadied in early trade in Europe on Wednesday after a more than one per cent fall in the previous session that reflected the currency's weakness in the face of a wobble in debt markets and investors' appetite for risk globally.

After a dip in inflation knocked the pound back on Tuesday, employment data due at 0830 GMT will be looked to for further signs of how the UK economy will hold up against the risks generated by June's vote to leave the European Union.

The pound has broadly stabilised in the past month, trading consistently above US$1.30, but traders have begun to worry that there will be more political noise about the upcoming Brexit negotiations as leaders meet in Bratislava on Friday.

"It seems that sterling has become increasingly sensitive to domestic data with more explosive movements expected as investors ponder the impacts of Brexit," FXTM analyst Lukman Otunuga said.

"Although the string of positive data in recent weeks provided somewhat of a lifeline to sterling bulls, the lingering Brexit anxieties continue to cap gains on the upside."

By 0707 GMT, the pound traded 0.3 per cent higher at US$1.3224. It was also marginally higher against the euro at 84.90 pence, having weakened to 85.33 pence per euro a day earlier.

The pound hit a seven-week high of US$1.3445 a week ago, more than 5 per cent above the three-decade low plumbed in July soon after the EU referendum, as investors trimmed record short positions against the currency.

But since then, with the head of the Bank of England leaving the door open to more monetary easing, and with Brexit negotiations back in the headlines after the British parliament returned from recess, sterling has shed almost 2 per cent.

The labour data is expected to show wages continuing to grow faster than inflation, but still shy of levels that would provide a more lasting boost to inflation that might stay the BOE's hand on further easing of monetary policy.

Brexit minister David Davis said on Monday that Britain will make its guidelines for talks on leaving the European Union public by the time it triggers the formal exit process, in the first indication of when Britons will find out what the government hopes to achieve in the talks.

REUTERS