By Anneken Tappe

Sterling hovers in the red despite Theresa May's call for calm

Geopolitical noise was the focus of foreign exchange investors on Monday, leaving traditional havens like Japan's yen and Switzerland's franc among the best performers, while the U.S. dollar struggled.

The topics were plentiful. On the Brexit front, the Irish border remains a sore point for the U.K. and the European Union (http://www.marketwatch.com/story/brexit-talks-face-setback-just-days-ahead-of-key-summit-2018-10-14), as they failed to find a compromise. Northern Ireland is part of the U.K., while the Republic of Ireland is an EU member state, leading to questions about how their border will be treated post-Brexit. The next EU summit, which will have Brexit at its center once again, is due to kick off on Wednesday.

"The pound opened below the psychological $1.31 handle on concerns that a Brexit agreement might be slipping away after the U.K. and EU negotiators were said to have called 'a pause' in their Brexit talks and would now wait for the outcome of a summit midweek before any resumption," said Dean Poppelwell, vice president of market analysis at Oanda.

Sterling since edged higher, last buying $1.3143, up from $1.3142 late Friday in New York.

"If there is insufficient progress [at the summit], the possibility of a special summit next month to finalize an agreement looks dead in the water. Dealers expect the pound to remain volatile in the short-term," Poppelwell said.

U.K. Prime Minister Theresa May addressed her parliament on Monday, called for "calm heads" and said the negotiations were now in the final stages.

Elsewhere in Europe, Italy will submit its controversial budget proposal to the European Commission on Monday. The proposal sees Europe's fourth largest economy run a higher budget deficit to make good on campaign promises of the ruling coalition, setting up a clash with Brussels over EU fiscal rules.

German politics were also in focus after the Bavarian Christian Social Union -- Chancellor Angela Merkel's sister party -- registered the worst result in decades in regional elections (http://www.marketwatch.com/story/merkels-allies-fare-poorly-in-bavaria-regional-election-2018-10-14) which also saw the far-right Alternative for Germany party win enough votes to enter Bavaria's parliament. Merkel's coalition government has faced much strain since the leader won a fourth term last year, periodically causing concern about snap elections among investors.

Nevertheless, the euro started the week in the green, rising to $1.1583, compared with $1.1560 late Friday.

Meanwhile in the U.S., investors are digesting comments from President Donald Trump (http://www.marketwatch.com/story/from-climate-change-to-china-to-kavanaugh-heres-what-trump-told-60-minutes-2018-10-14) who threatened "severe punishment" for Saudi Arabia, should any connection between the country and a missing journalist be found. Saudi Arabia responded with the threat of retaliation. In the same 60 Minutes interview, Trump also said a third round of import tariffs for Chinese goods could come and that China wouldn't be able to fight back.

Trump on Monday seemed to soften his stance on Saudi Arabia after speaking with the country's ruler. Trump said it was possible that "rogue killers" were behind the disappearance of the journalist, Jamal Khashoggi.

The ICE U.S. Dollar Index was last down 0.2% at 95.069, reversing Friday's gains (http://www.marketwatch.com/story/dollars-3-day-slide-pauses-china-sets-yuan-level-at-weakest-in-18-months-2018-10-12).

The Swiss franc and Japanese yen were meanwhile benefiting from the risk-off mood that reigned in the face of the political headlines as well as weaker stocks in Europe and Asia. U.S. stocks are also expected to open Monday's session lower.

One dollar last bought 0.9878 franc, down 0.5% near a two-week low, while also fetching Yen111.80, down 0.4%, earlier hitting its lowest in about a month.

(END) Dow Jones Newswires

October 15, 2018 11:15 ET (15:15 GMT)