Sterling rose on Monday, breaking a two-week losing streak as traders capitalised on the dollar's broad weakness to add positions after the European Union gave the green light to move Brexit talks to the next stage on Friday. With major currency pairs hemmed in broad trading ranges in the last few trading days of 2017, the dollar's weakness before a vote in US Congress on tax reform this week gave some traders an excuse to consolidate positions.
"Major currencies are struggling for direction and though the future Brexit negotiations remain a big question mark, there is some broad consolidation going around these levels," said Lee Hardman, a currency strategist at MUFG in London.
The dollar dipped on Monday on some uncertainty that the bill would indeed be pushed through, and with some doubts creeping in over the pro-growth effect the tax reforms would have. Sterling rose 0.2 percent against the dollar to $1.3352 on Monday, snapping a two-week falling streak that has seen it lose nearly 2 percent so far this month.
Against the euro, sterling was down by a similar margin at 88.30 pence per euro. Latest positioning data showed hedge funds have slowly increased their purchased positions on sterling for the fourth consecutive week with net long bets at a two-month high.
The EU agreed on Friday to move Brexit talks onto trade and a transition pact but some leaders cautioned that the final year of divorce negotiations before Britain's exit could be fraught with peril. "The euphoria about the fact that the Brexit negotiations have now moved on to Phase 2 did not last long with sterling almost under as much pressure as Prime Minister Theresa May is who is struggling to accommodate everyone," Commerzbank strategists wrote in a daily note.