LONDON: Sterling edged lower on Thursday as concern increased that disagreement over the European Union's draft guidelines for a trade pact with Britain would prevent a transition deal being reached at a summit later this month.
British Finance Minister Philip Hammond said on Wednesday that a transition deal would be concluded this month. Uncertainty about whether that is feasible has weighed on the pound since the EU published its guidelines that same day.
"The front end remains 80 percent priced for a May rate rise but Brexit issues are already apparent and that may weigh on the currency," Societe Generale strategists wrote in a note.
Sterling slid nearly a third of a percent on Thursday to $1.3861. Against the euro, it was broadly flat on the day ahead of a European Central Bank policy decision due later on Thursday.
The pound hit a 1-1/2 month low of $1.3712 last week and was trading just 1 percent above those levels.
Analysts said sterling was also struggling due to a risk-off mood across markets on the back of worries about a trade war led by US President Donald Trump's administration, and on concerns about the effect such a trade war might have on Britain.
A Reuters poll of analysts on Wednesday found sterling is set to trade slightly higher in a year's time, near the $1.41 level, less than a month before Britain is formally due to leave the EU, indicating currency strategists remain optimistic London and Brussels can manage a smooth exit and transition deal.
Unlike substantial positions underpinning the euro, speculators have trimmed bets in favour of sterling in recent weeks, according to Commodity Futures Trading Commission data.
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