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Sterling falls to over five-week low vs euro on hard line in EU talks

The pound fell on Thursday, hitting a more than five-week low versus the euro, as Britain confirmed a hardline stance on trade talks with the EU and disappointment grew that the new finance minister may not increase spending as much as expected.

Britain said on Thursday it wanted binding obligations on access to the European Union’s financial market. London, Europe’s biggest financial centre, risks being locked out of its biggest market for services such as banking, insurance and asset management if it loses access to the EU in January.

But senior minister Michael Gove told parliament on Thursday the UK would not “trade away its sovereignty” in pursuit of a trade deal with the EU.

The pound slipped 0.2% to a one-week low of $1.2860 and held near this level in late trade GBP=D3.

Against a broadly firm euro, sterling fell more than 1% to 85.43 pence, its lowest level in more than a month EURGBP=D3.

The pound also fell against the safe-haven Japanese yen to a two-month low of 141.50 GBPJPY=D3.

“The pound has reversed early gains as the government firmly places the prospect of no-deal back on the table in order to strong-arm the EU’s dynamic alignment to bend to their will,” said Simon Harvey, a forex analyst at broker Monex Europe.

“The resumption of trade uncertainty comes just as business optimism starts to improve, suggesting the Brexit headwind to the economy may not have abated quite just yet and hence the need for heightened fiscal stimulus,” Harvey said.

But the new fiance minister, Rishi Sunak, has been told by Treasury officials he cannot simultaneously raise public spending as fast as Prime Minister Boris Johnson wants, keep taxes down and adhere to new Treasury rules that allow borrowing only for capital investment, the Financial Times reported.

Consequently, Sunak could postpone loosening fiscal policy, which has put pressure on the pound. The possibility of more spending was the main reason the pound strengthened in recent weeks, despite concern that Britain may not agree a trade deal with the EU by the end of this year.

Market gauges for implied volatility in sterling in all tenures from one-month to one-year options contracts all rose close to their highest levels this year.

Money markets have started to price in a higher chance the Bank of England will cut interest rates to boost the economy if data worsen and Sunak does not stimulate growth through higher fiscal spending. A 25-basis-point cut to the current 0.75% rate is priced in by August this year.

“No big fiscal push means that if there’s a slump, the burden of reviving the economy will fall on monetary policy,” said Marshall Gittler, an analyst at broker BDSwiss Group.

Additional reporting by Dhara Ranasinghe; Editing by Alex Richardson

Source: UK Reuters

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Pound sinks as Boris Johnson warns of hard Brexit

The pound has sunk in early trading today ahead of a Boris Johnson speech in which the Prime Minister is expected to demand a looser trade deal with the EU that could spell a hard Brexit.

Sterling fell over one per cent against the dollar to $1.3069 ahead of the Prime Minister’s speech. Johnson is set to start UK-EU trade deal negotiations today with the aim of securing a Canada-style free trade deal.

What does an Australia-style trade deal mean?

But if they fail to secure a deal by December 2020, Johnson will say he will fall back on a hard Brexit. That would see the UK trade on World Trade Organization (WTO) terms.

While a Canada-style deal would enable tariff-free and quote-free trade on goods, a WTO-style deal would buck City expectations of tighter alignment with the EU.

Instead, the model would look similar to Australia’s own arrangements, defaulting on WTO terms with the potential for sector-specific side-deals. That includes the potential for significant new tariffs and other barriers to trade.

“It would appear that the currency has taken a look at what comes next Brexit-wise … and had a bit of a wobble,” Spreadex financial analyst Connor Campbell said.

“Its fears aren’t unfounded. They are based on the details of a speech Boris Johnson is set to deliver to businesspeople and ambassadors. [It will state] that the UK will refuse close alignment with EU rules and reject the jurisdiction of European courts.”

Pound ‘vulnerable’ to hard Brexit strategy

Sterling sank as much as one per cent against the dollar to hit $1.3064 shortly after 10am.

Then it extended its fall to tumble 1.25 per cent against the dollar to $1.3035 in the afternoon.

Even a nine-month high in the UK manufacturing sector could not limit the pound’s fall.

Economists warned the pound was at risk as a result of Johnson’s latest Brexit strategy. Kit Juckes, of Societe Generale, said: “Brexiteer politicians are moving from celebrating the exit to sounding bold as the trade talk verbal jousts begin. With positioning data still suggesting an excessively long speculative position in the market, sterling is vulnerable.”

London Capital Group’s head of research, Jasper Lawler, added: “If the main purpose of Boris Johnson’s speech is to get across the idea that the UK does not plan to align with EU rules, the pound could come under renewed pressure.

Foreign secretary Dominic Raab previewed the UK’s stance last weekend. He said: “We are taking back control of our laws, so we are not going to have high alignment with the EU, legislative alignment with their rules.”

The future of financial services is set to be a hot topic in the UK-EU trade deal talks. UK firms’ access to European markets will be key, amid other issues like fishing rights.

Johnson could walk away from EU trade talks if the sides cannot reach a deal, and pursue a hard Brexit instead.

But he said negotiations over the Canada-style model and Australia-style model were not a choice between “deal or no deal”. Instead he said: “In either case, I have no doubt that Britain will prosper.”

FTSE 100 enjoys boost at sterling’s expense

The pound’s fall boosted the FTSE 100, which recovered some of Friday’s deep losses. By 10.30am, the index was up 0.5 per cent at 7,324 points.

That contrasted heavily with China’s nine per cent drop as the Shanghai Stock Exchange returned after an extended break.

“Ultimately the coronavirus has been very damaging for anyone with money invested in the markets via their pension or investment accounts,” AJ Bell investment director Russ Mould said.

“However, markets outside of Asia on Monday showed signs of stabilisation.”

“The FTSE 100 was flat at 7,285, somewhat helped by the pound weakening against the dollar, down 0.6% to $1.3130. That’s generally good for companies whose shares are priced in pounds but who earn in foreign currencies including the dollar.

“In terms of the sectors suffering as Shanghai’s market reopened, worst hit were telecommunications, industrials, tech and consumer cyclicals.”

Pound gives up Bank of England gains

Sterling shed gains made last week after the Bank of England voted to hold interest rates.

Neil Wilson, chief markets analyst at Markets.com, said the pound’s slide shows traders are again entertaining the risk of a no-deal Brexit.

“No deal is not the base case by any means but the EU and UK look in very different places right now,” he said.

“It’s going to be a very long and rocky road to get there and the shape of the deal will hinge on some important concessions on both sides. The British government has come out swinging over the weekend with plenty of fighting talk. But they’re up against a tough opponent.”

“We are left at present at something of an impasse before the talks even begin.”

Ranko Berich, head of market analysis at Monex Europe, added that sterling’s drop feels like Groundhog Day.

But the difference is Johnson is being wary of being seen as inflexible, he added.

“On the whole, although Barnier and Boris have indeed set out markedly different visions for trade relations, the UK Prime Minister was careful not to emphasise any of the sort of red lines that sunk his predecessor’s negotiations with the EU.”

By Joe Curtis

Source: City AM

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Pound climbs on General Election news but traders foresee rocky ride

The pound jumped today after it became clear the Labour party would back a December General Election, but it has since settled back down as traders steeled themselves for a volatile six weeks.

Sterling has had an extremely rocky few months. It hit a 45-year low against the dollar in August as Prime Minister Boris Johnson’s government looked intent on taking Britain out of the European Union without a deal.

It has since risen significantly, however, thanks to a no-deal exit being taken off the table – for now – and Johnson striking a new deal with the EU. By 9pm today it stood at $2.863.

An election campaign brings a new set of uncertainties for sterling traders. “Sterling will be buffeted by the latest polls,” said Chris Towner, director at financial risk adviser JCRA.

“In case Labour is doing well, it is expected to put pressure on sterling and if the Conservatives are doing well in the polls, we expect support for the currency.” This is because a Conservative majority would likely cause Britain to leave the EU with a deal.

Edward Park, deputy chief investment officer at investment firm Brooks Macdonald, agreed. “Should parliament return in December with a mandate for Johnson’s deal, sterling will value the reduced no deal threat and continue the rally seen in recent weeks,” he said.

Other factors will also affect sterling in the meantime. If the European Central Bank (ECB) cut interest rates more deeply than expected, the pound is likely to rise against the euro.

Should economic data in the UK improve, the Bank of England could signal that rates are likely to rise once there is more Brexit uncertainty. This would also push sterling higher.

Nomura foreign exchange strategist Jordan Rochester said: “Polling is likely to be volatile during that six-week election campaign and investor inflows into GBP are likely to suffer from the uncertainty.”

Sterling traders should take “lessons from history,” he said. “When the 2017 election was announced in April it led to a 1.3 per cent rally in GBP on the day. But he said this was the “peak of the optimism” and sterling then fell around six per cent against the euro.

“One thing is for sure,” Towner said, “a hard Brexit is now an unlikely outcome and certainty surrounding Brexit will give sterling a very welcome boost.”

By Harry Robertson

Source: City AM

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Pound choppy as UK parliament in turmoil over Brexit deal

The pound against the US dollar (GBPUSD=X) was choppy in the first weekday trading session following an extraordinary session in UK parliament over the weekend that saw prime minister Boris Johnson’s Brexit plans in disarray.

Initially, investor sentiment remained dampened, with cable down by 0.6% and hovering around the $1.29 mark, as traders await to hear when a vote on Johnson’s Brexit deal, which was sealed with the European Union last week, will be held. However, it bounced back into positive territory around 920am UK time.

On Saturday, Members of Parliament (MP) backed a motion to further delay the process of Britain leaving the EU.

Dubbed Super Saturday, UK parliament held its first Saturday session in 37 years. Johnson tried to convince MPs to support his agreement he made with the EU and MPs debated the proposal. Johnson said in a speech “now is the time to get this thing done,” adding that delaying past the Brexit deadline of 31 October would be “corrosive.”

Johnson’s cabinet threatened to postpone a vote on a revised deal if politicians voted to drag out Britain’s exit from the 27-nation bloc, again. However, MPs voted 322 to 306 to back a motion designed to rule out a no-deal exit — which is what will happen if politicians do not agree to Johnson’s new deal with the EU. It was tabled by independent MP Sir Oliver Letwin, which “withholds approval” for Johnson’s Brexit deal until legislation implementing it has been passed.

Subsequently, Johnson was obliged to go to the EU and ask for an extension beyond the 31 October deadline — the second extension in under a year.

Johnson said at the time that he will press on “undaunted” with his Brexit strategy while the EU said it was up to the UK to “inform it of the next steps.” MPs signalled that a vote on Johnson’s revised Brexit agreement could now take place on today — however, this is up to the Speaker of the House of Commons.

However, Johnson caused greater ructions among parliament after he sent three letters to the EU:

  • An unsigned photocopy of the request for an extension as outlined by the Benn Act and in which he is obliged to give
  • Another note from the UK’s ambassador to the EU explaining why
  • A personal, signed letter from Johnson on why he doesn’t want a delay (which is inline with that he has repeatedly said since he became prime minister. He has even said, he would rather be “dead in a ditch” than delay Brexit).

Johnson is now under scrutiny from the law as judges are set to decide whether the unsigned letter sent by Johnson complied with the Benn Act or if the prime minister is in contempt of court. Meanwhile he said parliament must be given “a straight up-and-down vote” on the prime minister’s Brexit deal

“We cannot allow parliament’s letter to lead to parliament’s delay,” he said.

It is now up to Speaker of the House of Commons John Bercow to grant a vote on Johnson’s Brexit deal in parliament.

By Lianna Brinded

Source: Yahoo Finance UK

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Brexit deal hopes push pound to highest in over three months

Sterling surged on Friday as investors rushed to reprice the prospect of a last-minute Brexit deal, after the European Union gave its chief negotiator the go-ahead to re-open negotiations with London.

The pound has rallied more than 3% since Thursday, its biggest two-day gain since mid-June 2016, before the British public voted to leave the EU. On Friday, it surged by more than 2% to a three-and-a-half-month high.

Many investors were positioned for another Brexit delay as the most likely outcome, believing that the chances of an agreement before the end of October were virtually zero. The surprising news that talks were back on squeezed those betting against the pound, exaggerating the move higher, traders said.

EU Brexit negotiator Michel Barnier said on Friday that he’d had a “constructive” meeting with his British counterpart, Stephen Barclay, and the 27 countries in the EU gave him the go-ahead to try and agree withdrawal arrangements before the Oct. 31 deadline.

Barnier told member states that Britain has changed its position and now accepts that there cannot be the customs border on the island of Ireland, two EU sources said.

That followed a meeting on Thursday between the Irish and British prime ministers, who released a joint statement saying they could see “a pathway to a possible deal”.

The pound jumped 2% to $1.2708, its highest since late June at GBP=D3, in late London trading. It gained as much as 1.6% to 87.03 pence against the euro EURGBP=D3.

British stocks also rallied, gilt yields rose and money markets no longer fully priced in a 25-basis-point cut in interest rates by the Bank of England before December 2020.

Derivatives traders also regained confidence in the pound, with bullish bets exceeding bearish views on Friday for the first time since January 2018, according to the currency derivatives market, suggesting further gains for sterling.

Traders scrambled to cover positions amid the newfound optimism that a Brexit deal would be reached, said Kenneth Broux, FX strategist at Societe Generale.

“I think it’s very important to specify that sterling liquidity is very thin so volatility is high,” Broux said.

But he added that given the broadly bearish positions in sterling markets, “the obvious conclusion is that we’ll see a squeeze higher”.

Frederik Ducrozet, a strategist at Pictet Wealth Management echoed these sentiments. Irish officials have raised expectations for a deal, he said, and “if you get a path to a deal, there could be a massive squeeze in rates going higher and a re-steepening of yield curve.

“If that’s the case, then what we’ve seen today could just be the beginning of a bigger move,” Ducrozet said. “But we have been here before, so expectations may be a bit more limited.”

`TIME IS PRACTICALLY UP’
Despite the flurry of activity, it remains uncertain on what terms the UK will leave, when, and even whether it will do so at all.

Sounding a more cautious tone, top EU official Donald Tusk said “time is practically up” for Britain to reach a Brexit deal. That hurt the pound temporarily.

One dealer in London attributed price swings to “algos” – or computer-generated trading algorithms – in a headline-driven market.

Hopes are that a meeting between British and EU negotiators will pave the way for a Brexit transition deal at an Oct. 17-18 summit.. But some doubt Johnson will get the agreement past Britain’s parliament.

Deutsche Bank’s forex strategist George Saravelos said he was “turning more optimistic on Brexit” and no longer negative on the pound, while JPMorgan said the Anglo-Irish statement may have “changed everything”.

(For a graphic on ‘Sterling holds onto Thursday’s gains’ click tmsnrt.rs/2Mt66aq)

The sterling rally undermined UK’s export-heavy FTSE 100 .FTSE stocks index, but domestically focused UK retailers, banks and housebuilders benefited, rising 4% to 6%.

Irish stocks also rallied. Irish government bond yields fell .ISEQ IE10YT=RR.

Reporting by Elizabeth Howcroft

Source: UK Reuters

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Pound set for biggest weekly gain in nearly 2 months as no-deal Brexit opposition grows

The pound gained for a second consecutive day on Friday after a stream of resilient economic data this week calmed sentiment on the health of the UK economy and as opposition parties launched plans to block a no-deal Brexit.

British retail sales unexpectedly expanded in July and signaled that consumers were taking the prospect of Brexit in their stride for now, helped by firm wage data and modest inflation pressures, according to data released earlier this week.

“This suggests consumer spending is still holding up and still supporting the economy even though overall output contracted in the second quarter,” said Marshall Gittler, chief strategist at ACLS Global.

“It ties in with the relatively high wage growth that we saw earlier in the week.”

Further fueling demand for the British currency, especially against the euro this week, was growing momentum to try to stop Prime Minister Boris Johnson from taking Britain out of the European Union at the end of October without a deal.

Against the euro, the pound scaled a 11-day high against the single currency, up 0.5% at 91.45 pence.

Versus the dollar, the pound rose for a second consecutive day, up 0.3% at $1.2121 and is poised for its biggest weekly rise since late June.

The opposition Labour party said it would call a vote of no-confidence in Johnson’s government as soon as it believes it can win it and seek to form a temporary government under leader Jeremy Corbyn to delay Brexit.

While derivatives indicate market players may be trimming back some short sterling positions, the currency’s prospects remain clouded by the risk of Britain exiting the European Union without a divorce agreement.

Reporting by Saikat Chatterjee; Editing by Keith Weir

Source: UK Reuters

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Positive UK GDP helps the Pound against the Euro

UK GDP figures gave the Pound a lift against the Euro on Friday morning coming out at 1.8% which was an improvement compared to the previous quarter. However, the increase in Sterling was limited as the figures came out as expected.

One of the main reasons for the increase in GDP for the first quarter of 2019 was because this was the period when the Brexit deadline was due to take place on 29th March. Huge amounts of firms were stockpiling goods in the event that the UK would leave the European Union and so the figures were arguably inflated so this lift in GDP could be relatively short-lived.

With the Brexit deadline now being extended until the end of October we could also potentially see another strong third quarter for UK GDP if the same idea of stockpiling happens once again. However, as we are now into the second quarter of 2019 I think this could be a rather worrying period when the figures are released in a couple of months.

The other bit of good news on Friday was the release of UK Industrial and Manufacturing data which came out a lot higher than expected.

After having a difficult week for the Pound vs the Euro it managed to stabilise at just above 1.16 towards the end of Friday’s trading session.

Next week brings with it little in terms of economic data for the UK so eyes will turn towards what is happening on the continent. On Tuesday morning German inflation figures are due out and they have been falling recently and are predicted to fall once again.

As Germany is the Eurozone’s leading economy the impact of negative data will often negatively affect the value of the Euro so Tuesday could be a good short term opportunity if you’re looking at buying Euros in the near future.

Indeed, if inflation falls a central bank will often consider cutting interest rates in order to combat the problem. Therefore, if inflation continues to decrease then this could put pressure on the European Central Bank to consider what to do in terms of monetary policy when it meets next month.

By Tom Holian

Source: Pound Sterling Forecast

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Pound slides to one-week low as Brexit talks falter

Sterling slumped on Wednesday on signs that Brexit talks between Britain’s government and the main opposition party may soon collapse.

The pound has been falling as negotiations between the Conservative and Labour Parties lumber on with little success and as concerns grow about a challenge to Prime Minister Theresa May’s leadership.

But a suggestion by broadcaster ITV’s political editor that the talks could be pronounced dead later on Wednesday took sterling down another leg.

The pound dropped below $1.31 for the first time in a week, down 0.6 percent on the day. It also hit a six-day low versus the euro of 86.24 pence, again down 0.6 percent on the day.

Volatility in currency markets is currently very low and in recent weeks investors have also curtailed their bets on big swings in the pound.

(Graphic – GBP vol vs others, tmsnrt.rs/2WwASTs)

The government conceded on Tuesday that Britain would take part in European Parliament elections this month, a poll that could deliver more bruising results to both major parties.

“The announcement that the UK will take part in European elections confirms that cross-party Brexit talks aren’t going anywhere fast. This also refocuses attention on a leadership challenge to May. Favour the pound to “$1.2950,” said ING analysts in a note to clients.

Some analysts attribute sterling’s recent tepid performance to major risks that could yank the currency either way.

“To the upside, the probability of no Brexit via a second referendum and vote to remain… has started to edge up again in recent days. The downside is associated with.. the risk of May being replaced as PM which is rising,” said RBC’s chief currency strategist Adam Cole.

May agreed a withdrawal deal with the EU last year, but it was rejected three times by a deeply divided British parliament. That delayed the exit date, a postponement that has weighed on the pound as investors fret about prolonged political uncertainty.

Sterling has traded in a narrow range of $1.28-$1.31 since Britain pushed its scheduled departure from the European Union back from March until Oct. 31. There is still little clarity about when, how, or even if, Brexit will happen.

Investors have been broadly impervious to tepid economic data recently and even relatively hawkish comments from the Bank of England last week failed to jolt the currency.

(Graphic – Trade-weighted sterling since Brexit vote, tmsnrt.rs/2hwV9Hv)

Reporting by Tom Finn and Saikat Chaterjee; Editing by Kirsten Donovan and Alexandra Hudson

Source: UK Reuters

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Pound Sterling “Set up for a Fall” against the Euro: Analyst

Prepare for a fall in the Pound says one foreign exchange analyst we follow.

According to Jeremy Boulton, an analyst who sits on the Thomson Reuters foreign exchange desk in London, foreign exchange traders could be guilty of focussing exclusively on Brexit and ignoring worrying distress signals coming out of the UK economy.

“A market that only has eyes for how soft or hard Brexit is hasn’t paid much attention to data, and data say buying the Pound has set it up for a fall,” says Boulton.

The remarks come in the wake of a poor turnout for the services sector of the economy. The latest IHS Markit Service Sector PMI read at 48.9 in March, down from 51.3 previously, where markets had looked for a decline to only 51.0.

This means the UK’s largest economic sector contracted for the first time in two years. “Intense political uncertainty,” was cited by respondents to the survey.

But it’s not just the PMI that is bothering Boulton.

“London house prices – which are critical for the real estate market, which is critical for the economy – are falling,” says the analyst.

Image courtesy of Nationwide.

And the implications are negative for the British Pound outlook we are told.

“That means it’s worth betting on a bearish shift in sentiment towards Sterling. The Pound has rallied 3.5% in value this year and few are betting on a fall. Sterling shorts previously worked to brake drops in the Pound’s value; no such safety net exists to prevent that drop now,” says Boulton, adding:

“Traders should expect dovish chatter from the Bank of England, which recently hiked interest rates and has a lot more room to cut than the European Central Bank.”

It is worth pointing out that markets expect a strong recovery in UK business activity should a Brexit deal be ratified by the UK parliament, hence why there has been no substantial sell-off in Sterling, yet.

The risk is that any decline in Sterling in the event of a sudden deterioration in Brexit sentiment is much sharper and deeper now that the economy is not playing the role of safety net for the currency.

While markets have bid Sterling higher on the assumption that a Brexit deal will ultimately be ratified by the UK parliament, or that a lengthy Brexit delay looms, the prospect for political disappointment cannot be underestimated.

Prime Minister Theresa May has met Labour leader Jeremy Corbyn to try and thrash out an agreement on the type of Brexit both parties can back and push through the House of Commons.

While Corbyn’s initial response was one of constructive engagement, members of his party remain sceptical.

“I thought momentarily last night May’s ‘offer’ might be genuine,” says Labour lawmaker Ben Bradshaw, but having heard Brexit Secretary Stephen Barclay giving an interview on BBC Radio Bradshaw says “it is clearly a trap designed to try to get May’s terrible deal through, which some people have fallen for, but Labour mustn’t.”

We are hearing on Thursday that the red lines set out by the Labour Party membership, particularly that any backing of a deal be contingent on a second EU referendum, are too entrenched for Corbyn to shift.

We see a remote possibility to the two sides agreeing on something that genuinely has the backing of a majority of the House of Commons before next Wednesday’s meeting of EU leaders when they will consider whether or not to grant another Brexit extension.

We feel a breakdown in talks between May and Corbyn could hurt Sterling.

However, for now markets are focussing on the positives.

Another Labour Party lawmaker said her party will not make particular topics off-limit when its leader, Jeremy Corbyn, starts talks with Prime Minister Theresa May.

“We must find common ground now and we must find that very, very quickly and that’s why Jeremy has been very clear about not setting any limitations and keeping a very open mind,” Rebecca Long-Bailey, Labour’s business spokeswoman, told Reuters.

General Election Fears

We note in a recent article another risk on the horizon for the UK currency is a prospective General Election should Conservative Party Brexiteers feel they would rather go to the electorate than back their government and its Brexit deal.

The initial Conservative response to May’s latest gamble has been anything but welcoming and for us the likelihood of a general election has risen. The Pound tends to struggle in times of political uncertainty, and the prospect of a devoutly left-wing government taking the reins of the UK economy would likely see declines in Sterling.

“A Corbyn led government would spark fear of re-nationalisations in the market are could unleash further downside pressure on the Pound,” says Jane Foley, a strategist at Rabobank. “Currently we are forecasting EUR/GBP at 0.82 in 6 months on the view that a Brexit deal will be agreed. However, a period of messy domestic politics could make this forecast appear optimistic.”

EUR/GBP at 0.82 gives a Pound-to-Euro exchange rate of 1.22.

“We turned Negative GBP recently due to markets not pricing the risk of a Corbyn government adequately in our view,” says Thanos Papasavvas, Founder & CIO of ABP Invest. “The population is getting fed up with the Tories’ constant internal crises and their inability to form policy.”

However, strategists with the world’s largest currency dealer – Citi – say they are not yet concerned on the matter of a general election.

Strategists at Citi say while election risk is higher since last week, they think the Conservative Party’s desire to avoid this outcome is under-appreciated by the market.

“GBP will be dominated less by the outcomes of various votes this week and more by the reaction function of Conservative Brexiteers. If election risk has not followed through by the end of this week, GBP should be higher,” says a recent note from Citi.

For now markets are in agreement, but we would expect the shape of any Conservative-Labour deal to determine just how sizeable any Conservative MP mutiny might be.

Written by Gary Howes

Source: Pound Sterling Live

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Pound falls as parliament bans another vote on same Brexit deal

Sterling dropped below $1.32 on Monday after the speaker of Britain’s parliament said Prime Minister Theresa May’s Brexit deal could not be voted on again unless a different proposal was submitted.

The move by parliamentary speaker, John Bercow, saw the pound shed half a percent with investors saying it had hurt May’s chances of getting her EU withdrawal agreement approved before Britain’s departure on March 29.

“Now the government will have to come back with substantial changes (which is literally impossible) in relation to the deal otherwise it means a prolonged Brexit delay,” said Naeem Aslam, chief market analyst at retail broker Think Forex.

“The chances of the UK crashing out of the EU have increased once again because the EU needs a clear plan and a strategy before they grant an extension,” he added.

Other analysts, however, said the pound could enjoy gains this week.

“This move by parliament could simply increase the chances of a substantial delay to Brexit and if that happens the risks of a second referendum or general election go up substantially,” said Ulrich Leuchtmann, a currency strategist at Commerzbank.

May is still trying to salvage her Brexit deal by winning over doubtful lawmakers including the Northern Ireland’s Democratic Unionist party.

Her spokesman said on Monday that Bercow did not forewarn the government about his statement.

May’s Brexit deal was defeated last week for a second time in a rebellion helped by Eurosceptic lawmakers in her own Conservative party.

After Bercow spoke, the pound hit the day’s low of $1.3183, and was down nearly one percent. It also weakened against the euro to a three-day low of 85.93 pence.

Prospects are worsening for May and she suffered a further setback on Monday when Boris Johnson, the pro-Brexit former foreign secretary, refused to back her agreement unless she secured changes to the Irish backstop — designed to prevent a hard border on the island of Ireland.

“It should no doubt have a moderately positive effect on the British currency,” he added.

Sterling traders are bracing for further volatility as May tries to convince lawmakers to back her deal so that she can attend a European Summit on Thursday and offer leaders something in return for more time.

The Bank of England is expected to leave its interest rate outlook unchanged at a policy meeting on Thursday due to the deep uncertainty over Brexit.

Money markets currently price in around a 40 percent chance of a rate rise in December.

Last week the currency swung wildly, trading between $1.2945 and $1.3380.

This week it has struggled to hold onto gains as traders contemplate the array of Brexit possibilities that have opened up including a second referendum or general election.

Options markets show implied sterling volatility — a gauge of expected swings in a currency — still elevated, with one-week vols near multi-month highs. Sterling vol is higher than G10 as well as many emerging currency peers.

By Tom Finn

Source: UK Reuters