Sterling slips from 2-1/2 month high

Sterling eased from a recent 2-1/2 month high against the euro on Wednesday, with investors awaiting the Queen’s speech which will outline the government plans for a referendum on European Union membership.

Queen Elizabeth will detail the plans in a speech written for her by Prime Minister David Cameron’s government as she opens parliament with an annual display of pomp. Among other measures expected are possible cuts to taxes and welfare spending, issues flagged during an election which Cameron’s Conservative Party won earlier this month.

Brexit

Analysts have been flagging concerns about a possible “Brexit’’, and many say the risks to a UK economy that relies on inflows of investment and capital to fund its £100 billion current account deficit are greater this time around than during the Scottish referendum in September 2014.

“The focus will be on the Queen’s speech today, where we may hear more details on the EU in/out referendum - and perhaps even a date announced,’’ said Chris Turner, head of currency strategy at ING.

The single currency was up 0.2 per cent at 70.82 pence, recovering from a low of 70.645, its lowest since March 12. Against the dollar, sterling was 0.2 per cent firmer at $1.5420, although investors were selling the pound at higher levels, traders said

Nevertheless, if the speech can lift some of uncertainty surrounding the EU referendum, sterling could rally, especially against the euro, traders said.

“The new government has been under pressure from business to hold the referendum early to remove uncertainty, which has been having a negative impact on business investment inflows into the UK,’’ Morgan Stanley analysts said in a note.

“We would see removing this uncertainty as a longer-term positive factor for sterling,’’ they added.

Debt woes

Sterling could also benefit from lingering worries about whether Greece can repay loans to international creditors. Although officials have played down the risk of an imminent default, some nervous investors preferred traditional safe-haven assets like UK gilts, Swiss franc and German Bunds.

Greece must repay four loans totalling $1.76 billion to the IMF next month, including €300 million on June 5. Officials had said on Tuesday Greece could avoid paying back the IMF on June 5 and win more time to negotiate a funding deal without defaulting if it lumps together all repayments due in June and pays them at month end.

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