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June 26, 2019

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Sterling edges up as UK opposition tries to block no-deal Brexit

The pound rose towards a three-week high on Wednesday after Britain’s main opposition party said it would try to introduce parliamentary legislation to prevent a no-deal Brexit.

Investors are concerned the next prime minister could put Britain on course for a no-deal divorce with the European Union and send the pound plummeting.

Frontrunner Boris Johnson, a eurosceptic, has said he would be willing to take the nation out at the end of October, even if it meant leaving without a deal.

But Labour on Wednesday will debate a motion to seize parliamentary time on June 25 to give lawmakers the chance to introduce legislation preventing a no-deal Brexit.

“With the risk of a new leader with a new mandate behind a (somewhat) more unified Conservative Party, the opposition must make hay with mayhem while they can. By forcing this issue today, candidates must clarify where they stand on Brexit,” said strategist Helen Thomas, of Blonde Money.

A majority of lawmakers oppose leaving without a deal and other leadership contenders have warned parliament will block any attempt to do so.

The pound was up 0.2% at $1.2740, close to a three-week high of $1.2763 hit on Friday. It was flat against the euro at 89 pence

Sterling, which has been confined recently to a range of $1.26-$1.28, found some relief on Tuesday after British wages in the three months to April rose faster than expected.

Traders have largely ignored economic data releases in Britain recently, believing the Bank of England is unlikely to change interest rates until Britain decides how, when and even if it will leave the European Union. The United Kingdom is scheduled to exit the bloc on Oct. 31.

Reporting by Tom Finn; Editing by Andrew Cawthorne

Source: UK Reuters

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Sterling to slide on no-deal Brexit – Reuters poll

Sterling would weaken considerably against both the dollar and euro if Britain left the European Union without a deal, according to strategists in a Reuters poll, with many saying the pound could reach parity with the common currency.

The pound had its biggest monthly loss against the euro in two years in May and also lost against the dollar, whacked by risk aversion amid the Brexit impasse.

It is still unclear how, when or even if Britain will leave the EU almost three years since Britons voted in a referendum to part ways. The two sides are currently due to divorce on Oct. 31, later than the original March 29 deadline.

If the country leaves without a deal, foreign exchange strategists polled by Reuters on May 30-June 5 were almost unanimous in saying the pound would tumble.

Currently hovering around $1.27, median forecasts said cable would trade between $1.15-$1.20 within a month following a no-deal Brexit. Two said it could go as low as parity to the dollar.

On Wednesday one euro was worth about 88.6 pence, but the median trading range was 91-96p in a no-deal scenario. Almost half of respondents said the euro could strengthen to one pound or beyond.

“The risk of a no-deal Brexit is rather limited in reality but it would be catastrophic if it actually happens,” said Everett Brown at IDEAglobal.

ORDERLY BREXIT?

Boris Johnson, a former London mayor who was the face of the official 2016 campaign to leave the EU, is favourite to replace Theresa May as British prime minister. May announced last month she would quit the top job over her failure to deliver Brexit.

Johnson, who served as foreign minister in May’s cabinet until his resignation last summer over her Brexit proposals, takes a more hardline stance on the issue and has said Britain must leave the EU on Oct. 31 “deal or no deal”.

Still, Reuters polls of economists taken since the June 2016 referendum have consistently said the two sides would part ways with a deal agreed and median forecasts in the wider poll of around 60 strategists predict that sterling will strengthen.

One pound will be worth $1.27 in a month, in six months it will get you $1.30 and in a year will be over 5% stronger at $1.34. But that is still well below the $1.50 where it was trading before the June 2016 referendum to leave the EU.

“We still see an orderly Brexit resolution in 1H20 as more likely, hence we remain bullish on sterling in the medium term,” Morgan Stanley strategists told clients in a note.

Those median forecasts are a touch weaker than those given a month ago. The downgrade for sterling comes despite growing expectations that the U.S. Federal Reserve will soon follow other central banks and start cutting interest rates.

In contrast, the Bank of England was still narrowly expected to raise borrowing costs early next year in a Reuters poll taken last month.

The European Central Bank’s interest rates are going nowhere anytime soon, another Reuters poll found, and its next move will be to tweak its forward guidance to more easing.

So it was a similar strengthening story against the euro. The one, six and 12-month forecasts were 88.0p, 86.3p and 86.0p respectively.

Polling by Sumanto Mondal and Manjul Paul; Editing by Ross Finley and Gareth Jones

Source: UK Reuters

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Brexit Going Nowhere: Pound Drops to Three Month Low

The Pound hit a three-month low on Wednesday as investor sentiment soured on the lack of Brexit progress. Against its peers, the British Pound has become the worst performing currency this week as markets lose hope that Theresa May will be able to get her Brexit deal across the line on her fourth attempt next month. 

Brexit Goes Nowhere, British Pound Exchange Rate Hits Three-Month Low

It’s been almost three years since the monumental vote took place, and there’s still no deal in place, despite a Brexit day extension. The risk of a hard Brexit has also increased, with most of Theresa May’s successors seen as hardline Brexiteers. Sterling has tumbled by around 1.2% in five days, a far cry from earlier in the year when it was one of the market’s most impressive performers.

Maximilian Kunkel, UBS Wealth Management Chief Investment Officer for Germany, said:

‘We don’t think it makes any sense at the moment to trade in U.K. government debt. We have become relatively cautious on the U.K. in any case, given no matter what Brexit you’re going to get, in the end the U.K. economy is likely going to suffer from it.’

Meanwhile, Eurozone growth data surprised today, coming in at 0.3% quarter-on-quarter in Q1 on a seasonally adjusted basis, rather than the 0.4% expected. On the year, Q1 jumped from 1.2% to 1.3%.

The rest of the week is relatively quiet for Eurozone and UK domestic data, meaning a lot of the Pound to Euro (GBP/EUR) exchange rate’s movements will be determined by developments elsewhere and political events. The Pound to Euro exchange rate has been trending in the region of 1.1488, hitting highs of 1.1535, and residing at lows of 1.1445. The Pound to US Dollar (GBP/USD) exchange rate has hit lows of 1.2826 in today’s European session, with highs of 1.2923.

BY CHARLIE MURRAY

Source: Currency News Centre

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Sterling headed for worst week in a month as Brexit drags on

The British pound was headed for its biggest weekly drop in a month on Friday, dragged down by growing concern about stagnant Brexit talks.

A broad dollar rebound this month — it has gained against all its major rivals — has also undercut the appeal of the pound before a Bank of England policy meeting next week where policymakers are expected to leave interest rates unchanged.

Sterling – stuck around $1.29 – has struggled this week as lawmakers returned from an Easter recess with little sign of progress in Prime Minister Theresa May’s efforts to convince lawmakers to back her Brexit deal.

Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

Britain’s departure date from the European Union has been pushed back until as late as the end of October. The protracted divorce is hurting the British economy and poor productivity is hindering growth, Goldman Sachs said.

Sterling edged 0.3 percent higher to $1.2932, its weakest since mid-February. Against the euro, the pound traded flat at 86.3 pence. On a weekly basis, it is set to decline 0.6 percent, its biggest drop in four weeks.

Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

The dollar, which rose towards a two-year high on an index of major currencies, also weighed on the pound. So did the prospect of a fresh push for Scottish independence.

“Renewed debate about the choice of currency for an independent Scotland will rekindle uncertainty. Sterling risks $1.2800 in the current strong dollar environment,” said Chris Turner, head of foreign exchange strategy at ING.

Differences over Brexit have strained relations with the British government, and Scotland will start preparing for an independence referendum before May 2021, First Minister Nicola Sturgeon said on Wednesday.

Scots rejected independence in a 2014 referendum and support since then has stuck at around 45 percent, opinion polls say.

Sterling positions: tmsnrt.rs/2XJwUXX

Reporting by Tom Finn; Additional reporting by Saikat Chatterjee; editing by Larry King

Source: UK Reuters

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GBP Forecast: Will Sterling Stabilize with Brexit Risk in the Distance?

GBP FORECAST – TALKING POINTS:

  • All has been quite on the Brexit front over the last two weeks with British MPs on recess and the UK’s departure deadline getting pushed back until October 31, but recent lack of news could change with Parliament back in session
  • The latest retail sales data out of UK could bolster the British Pound, but uncertainty surrounding EU Parliamentary elections as well as cross-party talks between Theresa May and Jeremy Corbyn pose as potential headwinds
  • Download the free DailyFX Q2 GBP Forecast for comprehensive fundamental and technical insight over the second quarter covering various Pound Sterling currency crosses
  • Check out this Brexit Timeline for a chronological list of events surrounding the UK’s withdrawal from the EU and how negotiations have impacted the markets

Since Theresa May suffered a third defeat over her Brexit Withdrawal Agreement, the Prime Minister has been conducting cross-party talks with Labour party leader Jeremy Corbyn. As British Parliament struggles to overcome its ongoing impasse regarding the next path for Brexit, the European Council agreed to extend Article 50 for a second time in order to avoid a hard-Brexit where the UK departs the EU without a deal. With the Brexit deadline now pushed back until October 31 and British MPs on recess for the last two weeks due to the Easter Sunday holiday, GBP price action has stabilized alongside collapsing implied volatility.

While Parliament is due to resume its session this coming week, the House of Commons has little on the schedule. Although, there will be some Parliamentary business on Tuesday, but the motions are regulatory in nature and are not expected to directly impact ongoing Brexit negotiations. On Wednesday at 11:00 GMT, the Prime Minister will address the Main Chamber and take questions from British MPs which will hopefully provide an update on the latest Brexit developments.

That being said, the next Brexit steps and upcoming EU Parliamentary elections will likely prove pivotal for GBP prices over the short and medium term. Forefront risks highlight the ongoing cross-party talks between May and Corbyn as well as the possibility of Tories ousting the Prime Minister from her position.

FOREX ECONOMIC CALENDAR – GBP

GBP Forex Economic Calendar British Pound Sterling Price Chart

Honing in on the Pound Sterling economic calendar we can see that next week will be relatively quiet on the data front. Financial reports covering the public sector net borrowing released on Wednesday at 8:30 GMT and loans for house purchases expected Friday at 8:30 GMT will likely take the spotlight for upcoming UK economic data.

Also, with GBP bulls overlooking tepid inflation data, robust employment and retail sales numbers last week data could provide the British Pound with a positive tailwind. It is probable and should come as no surprise, however, that the progression of Brexit talks and related headlines will overshadow macroeconomic data and serve as the primary driver of GBP performance.

by Rich Dvorak

Source: Daily FX

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The British Pound is a Buy says Morgan Stanley

The Pound remains the best performing currency in the G10 universe for 2019 but the British currency has much further to rise, according to analysts at Morgan Stanley, who’ve recently told clients to buy the British currency.

Morgan Stanley forecasts double digit upside from Thursday’s level for the Pound-to-Dollar rate before the year is out and around a 3% increase for the Pound-to-Euro rate, the latter of which has already risen 5.4% thus far in 2019.

Analysts at the bank also advocated that clients buy the Pound-to-Dollar rate earlier in March, as they themselves are targeting a move up to 1.3650, although their year-end forecast for that exchange rate is much higher.

Expected changes in relative interest rates are key to much of the projected increase but the anticipated shift in base rates and bond yields could not happen without a resolution of the Brexit saga that’s ongoing in the UK parliament.

“This week’s Brexit news affirms our view that the probability of a softer Brexit is continuing to rise, particularly a Brexit that includes tighter economic linkages to the EU. Meanwhile the risks of a hawkish BoE remain underpriced – wage growth continues to rise in the UK while capacity pressures bite, suggesting potential inflation pressures,” says Hans Redeker, head of FX strategy.

Significant numbers of MPs have indicated they will now back Prime Minister Theresa May’s EU Withdrawal Agreement for fear of losing sight of the exit door entirely, including former foreign secretary Boris Johnson and at least 25 others.

Those pledges of support came after PM May offered to resign once her signature bill is through the House of Commons. However, a large number of MPs still oppose it and the Democratic Unionist Party (DUP) of Northern Ireland is so-far unmoved in its opposition to the treaty.

The withdrawal agreement will set the stage for negotiations on the future relationship so a change of Prime Minister would not address its deficiencies If it is not passed this week the UK will receive from the EU an Article 50 extension that runs only until April 12.

At that point MPs will choose between a so-called no deal Brexit and a much longer extension that would require participation in EU elections while politicians establish a way forward. PM May has said she will not allow a “no deal” exit unless parliament consents to it, but MPs voted on Wednesday with a majority  of 240 to reject that idea.

“The announcement of a proposed Brexit extension raises the risk of a public vote to ultimately solve Brexit, which may add some short-term risk premium and uncertainty into the currency. However, the long-term probability of a softer Brexit outcome is, as a result, rising, making GBP longs still attractive in our view,” Redeker says.

This will give the Bank of England (BoE) an opportunity to lift its interest rate again, by eliminating the risk of a “no deal Brexit”, which has long been seen as the difference between whether the BoE hikes or cuts its rate next.

The trade tariffs and non-tariff barriers on bilateral trade that would come with a “no deal Brexit” could potentially undermine the outlook for inflation by reducing demand in the economy. As a result, the BoE has been reluctant to make any changes to interest rates before it knows exactly how the Brexit saga will end.

The Bank of England has raised its interest rate by 25 basis points on two occasions since the referendum in 2016, taking the Bank Rate up to 0.75%, it highest level since before the global financial crisis.

But the central bank has said repeatedly in recent months that elevated inflation and a robust outlook for consumer price pressures mean it’ll need to keep raising rates in the coming quarters.

“GBP is most highly correlated to local rates and rate differentials, suggesting that a hawkish shift [at the Bank of England] should propel GBP higher. A key risk to the trade is that UK economic data softens, reducing the probability that the BoE raises rates,” Redeker says, in a note to clients.

Interest rate changes influence exchange rates through their impact on the attractiveness of related investments, particularly those in the bond market. They do that by reducing, or widening already-negative, interest rate differentials.

International capital tends to flow wherever relative interest returns are most favourable so if the gap between two interest rates moves in favour of one currency that is on one side of an exchange rate, that currency will normally be rewarded with a bid from the market.

The U.S. Federal Funds rate of 2.5% is substantially higher than the BoE’s 0.75% but markets are already speculating the Federal Reserve could cut its interest rate next year so if the BoE were to lift Bank Rate the Pound-to-Dollar rate differential would move in favour of Sterling.

It is a gradual increase in market bets on BoE rate hikes that Redeker says will drive the Pound-to-Dollar rate up to Morgan Stanley’s forecast of 1.52 by year-end, from 1.32 on Thursday, which implies an increase of 15% to come on top of the 3.5% gain already under the exchange rate’s belt.

The Pound-to-Euro rate is forecast to rise by almost 3% to just below the 1.22 level, from 1.1720 Thursday. The lesser increase in that exchange rate owes itself to the fact the Euro-to-Dollar rate is also projected to rise substantially, to 1.25, from 1.1250 Thursday.

By James Skinner

Source: Pound Sterling Live

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Sterling rises after UK lawmakers vote to take control of Brexit process for a day

Sterling rose at the start of the Asian trading session after British lawmakers voted to wrest control of the Brexit process from Prime Minister Theresa May’s government for a day.

The pound, unchanged before the result of the vote, rose 0.2 percent to $1.3224, the session high.

The British currency was also stronger versus the euro, up 0.2 percent at 85.59 pence.

Soruce: Reuters

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The pound is surging after UK and EU make a fresh Brexit breakthrough

  • Pound jumps after reports UK and EU negotiators made another breakthrough on the path to Brexit.
  • The pound has gained more than 1.1% against the dollar on Thursday morning.
  • It had dropped sharply in the past week after Cabinet resignations over Prime Minister Theresa May’s Withdrawal Agreement.

Prior to Tusk’s comments, an EU official said on Thursday morning that a 20-page declaration had been finalized ahead of an EU summit on Sunday where Prime Minister Theresa May hopes to have the Brexit divorce deal signed off.

The news, which marks another major step forward in the Brexit process, sent the pound flying higher, gaining as much as 1.1% against the dollar, and passing back above the $1.29 mark, which it dropped below a week ago after a series of resignations from the British Cabinet.

Sterling does, however, remain below the level it was trading at when Brexit Secretary Dominic Raab resigned in protest at the deal.

“The reaction itself is more telling than its magnitude. Optimism still remains in the market and sterling’s ability to explode at the blink of an eye is captivating,” Simon Harvey, a market analyst at Monex said in an email.

By 10.40 a.m. GMT (5.40 a.m. ET), it was trading at $1.2910, a gain of 1.15%, as the chart below shows:

Screen Shot 2018 11 22 at 10.41.03Markets Insider

The pound has taken off after reports that UK and EU negotiators have made another breakthrough on the path to Brexit.European Council President Donald Tusk said on Thursday morning that a political declaration on the UK and EU’s future relationship “agreed at negotiators’ level and agreed in principle at political level.”

Source: Business Insider UK

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Sterling steadies after Brexit sell-off

The pound rose on Tuesday after a heavy sell off by investors concerned Britain could soon crash out of the European Union without securing a trade deal.

Sterling sank to an 11-month low on Monday after Britain’s trade minister Liam Fox suggested the UK could leave the EU in March without a deal in place to ensure future relations with the bloc, its biggest trading partner.

The pound has fallen more than eight percent since April and with the government yet to agree a divorce deal with Brussels, currency traders are growing edgy about its outlook.

A lack of Brexit headlines and a pause in a rally by the dollar on Tuesday brought some respite for the currency, however analysts said that would likely only be temporary.

“The more we hear the phrase ‘no-deal Brexit’, the more likely the pound will be kept under the cosh,” said David Madden, a market analyst at CMC.

“The British side might give off the impression they would be content without a deal in order to force Brussels’s hand the pound could be in for a rocky ride in the near-term.”

Sterling edged up 0.2 percent to $1.2973, away from Monday’s trough of $1.2920, its lowest since July 19.

It remained broadly flat against a resurgent euro at 89.35 pence.

A stronger-than-expected reading of Britain’s second-quarter growth data on Friday could lift the pound further but even a rebounding economy will struggle to reverse the pound’s fortunes so long as a cliff-edge Brexit remains on the horizon, analysts say.

“GBP-bulls who are waiting for the data on Friday are having to endure quite a lot of pain,” said analysts at Commerzbank in a note.

“How positive can the data – that only ever describes the past – actually become to be able to cover up the risks the UK economy is facing?”

If Britain leaves the EU without a transition agreement, it would revert to trading under World Trade Organization rules.

Most economists think that would cause serious harm to the world’s fifth largest economy as trade with the EU, Britain’s biggest market, would become subject to tariffs.

Supporters of Brexit say there may be some short-term pain for Britain’s $2.9 trillion economy, but that long-term it will prosper when cut free from the EU and able to strike trade deals with faster-growing countries and regions elsewhere.

Source: UK Reuters

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Sterling rallies as UK services growth builds case for rate rise

The pound rose on Wednesday after a survey showing Britain’s dominant services industry gained momentum last month fuelled expectations of a Bank of England interest rate rise this summer.

After a sluggish start to 2018, the British economy is showing tentative signs of a recovery with surveys this week for the manufacturing, construction and services sectors beating expectations.

That has brought some respite for sterling after weeks of losses caused by worries about whether Britain can secure a deal with the European Union before it leaves the bloc next March.

The IHS Markit/CIPS services Purchasing Managers’ Index (PMI) unexpectedly rose to an eight-month high of 55.1 in June, beating economists’ average forecast in a Reuters poll for it to remain unchanged at 54.0.

The pound rose to $1.3201, a five-day high, from $1.3176 before the data GBP=D3 and away from 2018 lows hit last week of $1.3050.

At 1510 GMT the pound was up 0.3 percent versus the euro at 88.18 pence and heading for its biggest daily gain against the common currency since the European Central Bank signalled on June 14 that any interest rate rise was still distant. EURGBP=D3

“The momentum continues for the British economy, the services PMI data has lifted hopes that the Bank of England will raise rates sooner rather than later,” said Naeem Aslam, chief markets strategist at Think Markets UK.

Markets are pricing in an 88 percent chance of a single 25-basis-point increase by the end of 2018 and a 53-percent chance of an August rate rise.

Last month BoE chief economist Andy Haldane joined two other members of the nine-strong Monetary Policy Committee in calling for a rate rise, and official data was revised to show the first quarter slowdown was less severe than first thought.

The pound has slumped recently because of weakness in the economy, a resurgent dollar and fears that Prime Minister Theresa May will run out of time to agree a deal with the EU on the post-Brexit relationship.

The currency weakened more than 6 percent between April and June, its worst quarter since the 2016 referendum vote to leave the EU.

On Monday it fell despite relatively robust manufacturing survey data as investors worried about a looming a Brexit cabinet meeting later this week.

“Although there is good reason for the BoE to want to further normalise interest rate policy, the chances that a Brexit deal will not be struck in the coming months leans against the risk of a policy tightening,” said analysts at Rabobank in a note to clients.

The note said the pound would drop to $1.28 by the end of the year.

Source: UK Reuters

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