Sterling trades sideways as investors look to Brexit talks for cues

LONDON: Sterling steadied against the dollar on Friday, ending the week at much the same levels it started at, with traders keen to see new developments on Brexit negotiations before taking new positions on the British currency.

Economic data released over the week have pointed to the economy picking up at the end of last year, with businesses growing more optimistic about the year ahead. But that has had little impact on the currency.

Numbers released on Friday showing Britain's economic productivity rose at its fastest rate in more than six years in the three months to Sept. 30 - though in absolute terms still barely above its level of nearly a decade ago - did not give the pound any additional support.

BNP Paribas currency strategist Sam Lynton-Brown said data realeased on Thursday showing British consumers increased their borrowing by the smallest amount since mid-2015 in the three months to November could spell bad news for sterling.

"Given that the decline in real spending in the UK has been smaller than the decline in real wages, consumption is vulnerable, and we should start to see that feed through into softer activity data and then eventually into a weaker pound," he said.

Sterling was trading flat on the day at $1.3563. It had hit a 3-1/2-month high of $1.3614 on Wednesday, less than half a cent away from its highest since the Brexit vote, but traders said it needed new catalysts to break any higher.

A Reuters poll of currency strategists on Friday showed the pound is expected to mostly hold steady against both a shaky dollar and the firming euro this year, but much will hinge on progress in Britain's talks with Brussels on its withdrawal from the European Union.

The strategists, who were polled in the first week of 2018, were not brimming with optimism on how the next stage of talks will go, but most do not think the pound is set for another major fall.

"The pound's ongoing resilience continues to support our view from over a year ago that a lot of bad news (has) already (been) priced in," MUFG currency anaylsts said.

"An important positive implication for the pound is that the risk of a more disorderly 'No Deal' Brexit outcome has diminished and the pound should strengthen if fears over a more disruptive and harder Brexit outcome do not materialise."

Against the euro, sterling rose by a third of a percentage point to 88.77 pence.