Sterling struggles near three-week low on transition uncertainty

Sterling struggles near three-week low on transition uncertainty

Sterling struggles near three-week low on transition uncertainty

These factors continued to limit Sterling's upward potential, with investors especially sensitive to progress (or a lack thereof) on the Brexit front after the BoE asserted that an earlier-than-expected rate hike would be highly dependent on progress being made on any transition period.

The Pound may have seen renewed strength on the UK's post-Brexit prospects, but dismissive comments on Friday from EU Chief Negotiator Michel Barnier and the volatility that ensued revealed Sterling to still be very much under the thumb of Brexit-related news.

Last week sterling suffered its biggest falls against the dollar since October, hit first of all by broad strength in the USA currency amid a sharp stock market sell-off and then by worries that Britain could leave the European Union in a disorderly manner, triggered by Michel Barnier's warning.

Markets moved to price in a 70 percent chance of a rate hike in May after the meeting, and sterling jumped by more than 1 percent against the dollar and euro, but its gains were short-lived. The CPI figure is still stuck at 3% despite the gradual recovery in the Pound Sterling.

It was around a cent above Friday's low by 0850 GMT at $1.3868, up 0.2 percent on the day. The past 24 hours saw the greenback lose ground to Yen, Euro, and Sterling.

"Our long-held view of higher United Kingdom rates and sterling still stands, but in the short term the politics, stretched market positioning and the state of the global risk environment may provide headwinds against the pound", said Nomura currency strategist Jordan Rochester.

"This [sterling's move higher] is on the back of the broader dollar sell-off", said London-based Michael Hewson, analyst at CMC Markets.

The pound has climbed more than 3.5 percent against the dollar over the past two months, on the back of perceived progress on talks with the European Union on what a future relationship between the two will look like when Britain leaves in 2019, as well as some cautious optimism on the economy.

"We still believe that securing a transition deal is the most likely outcome, although the risk of a renewed period of pound weakness would increase if the United Kingdom government drags its heels in the coming weeks and months".