Brexit risks; sterling off highs

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LONDON: Sterling fell against the dollar and euro, retreating from the previous session's one-month highs, as investors braced for Britain beginning the formal process of leaving the European Union next week.

An interview with Bank of England policymaker Gertjan Vlieghe in The Times on Friday also laid out an argument for not raising interest rates in response to further rises in inflation.

Strong inflation and retail sales data have added to expectations the Bank of England might lean towards supporting sterling with higher interest rates over the next year, pushing the pound 1 percent higher against the dollar this week.

Investors, however, worry that when Prime Minister Theresa May begins formal divorce proceedings with the European Union next Wednesday, it may trigger a period of political jousting with Britain´s EU partners that will lay bare the scale of the risks to the economy.  Sterling was 0.3 percent lower at $1.2493 in London and was 0.4 percent lower at 86.49 pence per euro.  "Uncertainty (surrounding Brexit) remains intact," said Credit Agricole currency strategist Manuel Oliveri.

"Rate expectations are unlikely to rise because the BoE is linking its monetary policy stance to this uncertainty, and that´s why we don´t believe sterling has more upside from current lev.