Chris Wheal(Reuters) - Sterling steadied on Monday after posting its biggest daily drop in more than a month on Friday, with investors cautiously adding some long bets at the start of a week when Britain and the EU will sign off on a deal to move to the next stage of Brexit talks.
Latest positioning data showed hedge funds added to long sterling bets for a third consecutive week, in a potentially busy week for the British currency. A central bank meeting is scheduled for Thursday and a raft of top-tier data including for retail sales, inflation and jobs are also due this week.
Sentiment on sterling has improved slightly and investors have become a tad more hopeful for the short term, though trading has remained choppy since Prime Minister Theresa May managed to break the Brexit deadlock on Friday.
Some strategists like Peter Chatwell, head of euro rates strategy at Mizuho, said sterling’s moves reflected a lower likelihood of a disorderly Brexit rather than prospects of stronger growth or tighter monetary policy, which will depend a lot on any transition period and future trade deal.
British government bond prices rose strongly on Monday, reversing a fall on Friday as investors assessed the challenge for the government as it moves into the second phase of the Brexit negotiations.
The spread between 10-year British and German government bond yields was down about six basis points on the day, a three-week low. But a lot of the future trend in sterling will depend on a key central bank meeting later this week.