FX round-up: sterling falls against the euro on further Brexit concerns

Sterling recovered early losses against the euro on Wednesday amid concerns about the terms on which Britain will leave the EU, and the pound gained against a weakening US dollar.

After a late rally on 30 January the pound was looking to end the month on a weak note versus the euro after the European commission rejected a free-trade deal for financial services after Brexit, according to a Reuters report.

Sterling was down almost 0.3% to €1.1345 mid-morning on Wednesday after eurozone inflation data was mixed, with the headline consumer prices falling less than expected but the core number strengthening in line with forecasts.

Janaury's euro area consumer price index grew 1.3% on the same month last year, data from Eurostat, down from 1.4% a month before but stronger than the 1.2% average estimate from economists. Core CPI, which excludes more volatile prices such as fuel and food, rose 1.0% year-on-year, improving as expected from 0.9% a month earlier.

The pound had strengthened the previous afternoon after Bank of England Governor Mark Carney told MPs the BoE was intent on bringing down inflation. But the report about the commission's tough stance political and economic concerns that have dogged sterling in recent days.

Jane Foley, senior foreign exchange strategist at Rabobank, said the sell-off "underpins the risk that given the tangible threat that the political uncertainty could worsen in the coming months, GBP could be vulnerable".

But the pound rallied to €1.1417 by end end of the London session at 1700 GMT.

After falling against the dollar in early trading the pound rose 0.3% to $1.4195 as the dollar dropped against major currencies.

The euro extended its recent gains against the dollar, rising 0.51% to $1.2465 as solid eurozone inflation data encouraged speculation that the European Central Bank would start to tighten monetary policy.

Florian Hense, an economist at Berenberg, said the ECB would remain cautious in withdrawing stimulus measures, partly to ward off a sharp rise in the euro.

"If the euro continues to rise in coming weeks, the ECB may well delay any significant change in its formal guidance until after its 8 March meeting," he said.

President Donald Trump's state of the union address the previous day gave little encouragement to buy the dollar and traders expect no change in policy from the Federal Reserve at Janet Yellen's last meeting as chairwoman.

The yen edged down 0.15% against the dollar to make a dollar worth 108.94 yen after the Bank of Japan increased its buying of medium-term government bonds to keep bond yields close to zero. Against the euro the yen fell 0.76% to value the euro at 135.86 yen.