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Sterling slips as Brexit negotiations continue

Sterling slipped back below $1.31 this morning after soaring to its highest levels in 10 months at the end of last week on a broad dollar sell-off.

The pound jumped almost 2 cents on Friday to hit $1.3113, its strongest since last September, after U.S. inflation and retail sales data came in weaker than expected, putting into doubt the prospect of a further rate hike from the Federal Reserve this year.

Brexit Secretary David Davis, in the Belgian capital for talks with the European Union’s chief negotiator Michel Barnier a month after a first meeting, said on Monday that having “made a good start” during their last encounter, “this week we’ll be getting into the real substance”.

With less than two years to settle divorce terms before Britain leaves, deal or no deal, on March 30, 2019, the 27 other EU national leaders want British Prime Minister Theresa May to rally her divided nation swiftly behind a clear, detailed plan that can minimise economic and social disruption across Europe.

Investors will be watching the talks closely, with any signs that Britain will lose preferential access to Europe’s single market likely to weigh on the currency.

The situation remains difficult for the pound, however, as the recent reports of domestic political quarrels in the UK show…. In the short term, it may not be a breakdown of the Brexit negotiations, but a breakdown of the British government which is the biggest risk for sterling.

KEY DATA: Tuesday mornng 09:30AM – UK Inflation figures.

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