Sterling falls to seven-week low before PM May addresses lawmakers

By Tom Finn

LONDON (Reuters) - The pound fell to a seven-week low on Wednesday before British Prime Minister Theresa May was due to meet Conservative Party lawmakers, some of whom have discussed toppling her in anger at her Brexit negotiations.

May is seeking to win over lawmakers in her party who oppose her approach to the negotiations, which are stuck at an impasse just over five months before the United Kingdom leaves the European Union.

The prospect of a leadership challenge and of politics scuppering an agreement with the EU has weakened the currency in recent days.

Sterling fell on Wednesday to $1.2889, its lowest since Sept. 5, and traded down 0.7 percent. Against a weaker euro, the pound was flat at 88.31 pence.

“Sterling [traders] are parsing the words coming out of Westminster and Brussels but the issue is that the range of final outcomes is very broad,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

“We are still stuck in the $1.28 to $1.32 range. The answer for investors is to stay close to benchmark or slightly short,” he said.

Some of May’s senior ministers and lawmakers from the Northern Irish party that props up her government were seen entering her Downing Street residence on Wednesday, a Reuters photographer said.

Disagreement on a fallback plan for the border between Northern Ireland and Ireland is a key sticking point in the Brexit talks.

A Downing Street spokesman, however, said May — due to address her divided party’s powerful “1922 Committee” later on Wednesday — meets cabinet ministers all the time.

If May was toppled the pound would see a wave of selling in the short term because her replacement could increase the chances of a no-deal Brexit, said David Cheetham, chief market analyst at broker XTB.

But the pound “remains more sensitive to good news than bad which may mean a fairly sharp move higher should a [Brexit] agreement be reached.

“May’s position is similar to that of the pound in that it seems to be carrying on despite the sizable challenges faced,” Cheetham added.

Sterling briefly gained half a percent against the dollar and euro on Tuesday after a media report that the EU could offer May a UK-wide customs union to clinch a Brexit deal.

Additional reporting by Sujata Rao in London; Editing by Jon Boyle and Helen Popper