LONDON, March 2 (Reuters) - Sterling slipped against the euro and dollar on Friday after Prime Minister Theresa May called for a deep partnership with the European Union post-Brexit, but failed to convince investors a transition deal with the bloc was assured.
In a week in which sterling has fallen, the pound was initially unmoved by May's comments but limped slightly lower against both the euro and dollar as the speech came to an end.
Against the euro, sterling fell as much as 0.5 percent to 89.47 after trading down 0.2 percent at 89.24 before May gave her a long-awaited speech.
Versus the euro, sterling gave up its small gains to trade down 0.1 percent at $1.3767 after trading at $1.3792 earlier.
The pound has suffered its worst week against the euro since October after comments by the EU's chief negotiator Michel Barnier on Wednesday that a deal was far from guaranteed thrust political risk back onto the centre stage.
Analysts said that while May's speech suggested a transition deal - designed to buy Britain time to agree terms of exit from the EU was one step closer, she did not say enough to convince investors an agreement by the end of March, when Britain has said a deal will be done, was a definite.
"May's comments signal one step closer to an agreement towards a transition arrangement and the weaker dollar is also keeping sterling supported. But we have to see more meaningful progress for sterling to break out of current ranges," said Marc Chandler, global head of FX strategy at Brown Brothers Harriman.
With an Italian election and a vote on a German coalition due on Sunday, investors have also been reluctant to take on any new large positions.
"Traders will now be watching what the EU officials say after their comments on Wednesday that a transition agreement is far from agreed," said Viraj Patel, an FX strategist at ING in London.
Worries that Britain might not secure the post-Brexit transition period that it wants have overshadowed growing expectations that the Bank of England will hike rates in May thanks to better-than-expected economic performance and signs of inflationary pressures.
Amid a broad rebound in the dollar, sterling suffered its worst month since October 2016 in February versus the U.S. currency. (Editing by Keith Weir)