Sterling slips from 4-month highs on dlr bounce, Brexit talks

"They were probably hoping to get something a bit more tangible on the EU-UK trade negotiations." That uncertainty was reflected in the currency derivative markets with expected swings in the pound edging higher. Sterling/dollar implied volatility, a gauge of expected swings embedded in currency options, rose to a one-month high around 8.3%, boosted by the dollar's plunge this week.

Sterling retreated from a four-month high on Tuesday as a broad U.S. dollar rout over the past week ran out of steam with negative news from Brexit negotiations prompting hedge funds to take profits. The pound slipped 0.3% versus the dollar at $1.2842 after rising to its highest level since March at $1.2977 in early Asian trading. It held broadly steady versus the euro at 91.22 pence.

"Today is really all a function of the dollar," said Francesco Pesole at ING. "Sterling is not showing any divergence from the rest of the G10." Concerns about the lack of progress of Brexit negotiations also prevented the pound from pushing above the $1.30 levels.

The EU says a deal needs to be done by October to allow time for ratification by the end of the year. Both sides have said the talks may be stalling. Michel Barnier, the European Union's chief Brexit negotiator, said that a trade deal with the UK was possible, sources told Reuters on Monday. "Looking at the various comments from Barnier, markets are pricing in more uncertainty," said Pesole. "They were probably hoping to get something a bit more tangible on the EU-UK trade negotiations."

That uncertainty was reflected in the currency derivative markets with expected swings in the pound edging higher. Sterling/dollar implied volatility, a gauge of expected swings embedded in currency options, rose to a one-month high around 8.3%, boosted by the dollar's plunge this week.

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