Steady Sterling for 2018

The British pound is set to mostly hold steady against both the dollar and the euro this year, but much will hinge on progress in Britain’s talks with Brussels on its withdrawal from the European Union.

Currency strategists weren’t 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, either.

The results suggest growing risks for the British currency following its largest annual rally since 2009. Sterling rallied 10 percent last year, in large part because the U.S. dollar marked its worst performance in 14 years.

Market doubts over whether a trade deal can be done may hurt sterling, as would delaying any agreement until early 2019. Markets focussing on implications of a possible Labour government could also hold back the pound.

The dollar edged higher against other major currencies today, as investors were eyeing the release of highly-anticipated U.S. employment data due later in the day.

The U.S. dollar briefly recovered after Fed policymakers acknowledged, in the minutes of the Federal Reserve’s December meeting released Wednesday, that the U.S. labor market and economic activity remain strong, despite persistently low inflation.

The minutes seemed to suggest that the central bank will continue to raise rates gradually, but the pace could pick up if inflation rises.

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