Sterling steadies on dollar as traders digest Healey speech, tumbles on yen

LONDON, Sept 7 (Reuters) - The pound strengthened versus the dollar, held steady on the euro and dropped sharply against the Japanese yen on Monday, with British finance minister John Healey's first major economic speech giving the UK currency little clear direction.

Healey announced plans to give city regions greater powers to attract private investment as part of Prime Minister Andy Burnham's push to devolve power away from central government, and also stressed his commitment to fiscal discipline and to curbing rising costs for business and the public.

But much of what he said about his focus on growth, cutting regulation and tackling the cost of living was a continuation of the policy of his predecessor Rachel Reeves.

That left sterling at 85.86 pence per euro, a fraction stronger on the day, and up 0.14% on the dollar at $1.3573.

The dollar was softer on most peers on Monday, but the pound's strengthening did at least stem some of the previous week's losses against both the euro and the dollar. [FRX/]

Analysts at Barclays attributed that softening to pressure from higher global yields and a gradual — albeit preliminary — shift of focus towards the October Budget.

At that budget, investors want to see how Healey advances Burnham's ambitions from house-building and social care to defence, while keeping fiscal discipline. The scale of the dilemma he faces is causing some slight angst among traders.

"The August lull is giving way to a period of increased scrutiny on UK policies and fundamentals, shifting the risk-reward modestly to the downside for the pound," Barclays said.

The biggest move in the pound by far was against the yen, with sterling shedding 0.8% to 209.41 yen, its lowest since February, as the long under-fire Japanese currency strengthened across the board.

The yen could be seeing a change in fortunes as possible capital repatriation, unwinding carry trades and U.S. political pressure, plus expectations for faster interest rate hikes by the Bank of Japan, combine to provide support.

The Japanese currency hit 19-year lows on the pound in August, and 40-year lows on the dollar.

(Reporting by Alun John; Editing by Jan Harvey)