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Pound drops to near two-month low

London - The pound dropped to the lowest in almost two months versus the dollar amid news that the UK was compromising its stance to hasten divorce talks with the European Union (EU).

Sterling touched its lowest since June 28 on Wednesday and held near a 10-month low against the euro.

UK Prime Minister Theresa May is expected to concede that EU law will influence the UK long after Brexit, in a government position paper on Wednesday that will seek to bypass just the European Court of Justice’s “direct jurisdiction” and not all of its control.

• GBP/USD was down 0.1% at 1.2806, having earlier touched 1.2799, its lowest since June 28.

• Downside risks heighten following break of 1.2848 support; closing break below 1.2812 would fuel further sell momentum.

• Resistance at 1.2850-62, August 21 low, daily cloud base, August 22 mid price; support at 1.2794-87, June 28 low EUR/GBP up 0.3% at 0.9195, having touched 0.9196, its highest since October last year.

• The pair keeps grinding higher, albeit at slower pace; registering 4th day of higher high and higher low.

• Recent price action in EUR/GBP suggests “investors are still very comfortable being long the cross despite its lofty levels,” write analysts at Credit Agricole including Valentin Marinov in a client note.

• They say that “some cautiousness may be warranted, however, given that the latest bout of GBP-weakness has brought it into undervalued territory against both EUR and USD.”

• The release of Brexit papers by the UK government and the softening of its stance could allay “the lingering fears about a ‘cliff-edge Brexit’ in the business community.”

• Yield on 10-year gilts was up 1bp at 1.09%.

• The UK is scheduled to sell GBP2.75b 0.75% of bonds due in 2023.

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