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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

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Pound falls as PM May tries to clinch Brexit compromise

The pound had gained earlier in the session on signs some pro-Brexit lawmakers were willing to compromise with May, increasing the chances she will get her Brexit deal through parliament next week.

“Despite a strong start for the pound, dismal construction sector data and a strengthening dollar saw sterling drop below $1.32,” said City Index senior market analyst Fiona Cincotta.

Britain’s construction industry reported the first fall in activity in almost a year last month, with the HIS Markit/CIPS Purchasing Managers’ Index (PMI) falling to 49.5 in February from January’s reading of 50.6, although the pound was unmoved after the release.

Media reports over the weekend suggested London was softening its demands of the European Union in renegotiating parts of the Brexit withdrawal deal that is deeply unpopular within large parts of May’s own Conservative party.

The Sunday Times said a group of Brexit-supporting lawmakers who previously rejected May’s deal have set out changes they want to see to her agreement in return for her support.

The British parliament is set to vote on May’s deal next week, although the vote could be held sooner. If it fails to pass, lawmakers will get to vote on whether to delay Brexit, currently set for March 29.

Hopes for a delay to Brexit and bets that a no-deal Brexit is a far less likely outcome sent sterling surging last week as high as $1.3351. The British currency is up 3.7 percent against the dollar so far in 2019 and 4.7 percent versus the euro.

On Monday, though, sterling fell 0.3 percent to $1.3167, its lowest since Feb 26. It traded broadly flat against a weaker euro at 85.92 pence.

While Brexit negotiations dominate the headlines, concerns about a slowdown in the British economy continue to build.

The PMI for Britain’s dominant services sector is published on Tuesday.

Source: UK Reuters

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Sturdy sales data pushes pound higher amid Brexit concerns

The pound edged higher on Friday as strong British retail sales lifted sentiment, though investors were considering the consequences of a Brexit vote defeat in parliament for Prime Minister Theresa May.

On a weekly basis, the British currency was set for its third consecutive drop. Analysts said the latest parliamentary loss for the government, although on a symbolic vote, indicates May does not have the support of her lawmakers.

With less than six weeks before the March 29 exit date, May has stepped up efforts to convince the European Union to grant her concessions.

“The constant Brexit can-kicking has also increased the risks of a disorderly exit,” strategists at BNP Paribas said in a daily note.

May has promised that if parliament has not approved a deal by Feb. 26, she will make a statement updating lawmakers on her progress on that day and lawmakers will have an opportunity on Feb. 27 to debate and vote on the way forward.

For a factbox on what happens next, see

The pound was set to end the week on a cheerful note as data showed British retail sales rebounded in January, shaking off some of the recent gloom over the UK economy as the Brexit departure date nears.

After bouncing following the sales release, the pound held near the day’s high of $1.2839 in afternoon European trade, up 0.2 percent at $1.2824.

It performed even better against the euro, rising half a percent to 87.84 pence per euro at one point.

The euro’s decline accounted for much of the move, though. The euro fell after a European Central Bank board member said policymakers were discussing whether to issue new multi-year cheap loans to banks.

RATE HIKE BETS FALL

Dwindling expectations that the Bank of England will raise interest rates this year have weighed on the pound in recent days. Swap markets indicate a 28 percent probability rates will rise, compared with 30 percent earlier this week.

Derivatives markets painted a slightly more cautious picture for the pound, with one-month implied volatility picking up from December lows and rising to 9 vol on Friday.

Risk reversals, a market gauge of the ratio of puts to calls on a currency, indicate investors are leaning towards buying options to protect themselves against further downside in the British currency.

Source: UK Reuters

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Pound falls to 20-month low – time for UK property investors to act?

Following the postponement of a crucial Brexit deal vote by the UK government, the pound has fallen close to its lowest value against the US dollar since April 2017 – and this creates a significant opportunity for international investors to buy UK real estate.

What’s happened?

On Monday 10th December, UK Prime Minister Theresa May cancelled a key vote in the House of Commons on the details of a Brexit deal, outlining the current terms of the country’s withdrawal from the European Union (EU).

The decision was taken after Mrs May admitted that the current deal on offer, one negotiated between her cabinet and EU leaders, “would be rejected by a significant margin” by MPs in Westminster. It means that she must now decide the best of course of action to take, with the UK scheduled to formally leave the EU on March 30th 2019.

Following this decision to postpone the vote, the pound fell to its lowest level against the US dollar for 20 months:

  • After markets closed, sterling was down almost two cents against the greenback, with the exchange rate hitting £1/$1.2562, close to its lowest level since April 2017
  • At £1/€1.059, the pound also fell 1% against the euro and reached its lowest rate since August 2018

What do international investors need to know?

Firstly, it’s important to consider the fundamental reasons for investing in real estate:

  • Long-term growth
  • A regular income from rental returns
  • Decisions based on supply and demand levels in key markets

Then, international investors looking at the UK property market should also remember:

  • Ongoing Brexit discussions does not change the fact that UK property is one of the strongest investments one can make globally
  • 340,000 new homes are needed each year until 2031 just to meet current demand
  • Demand for rental property will reach six million by 2025 – but just 100,000 purpose-built rental properties are currently in the delivery pipeline nationwide
  • Until this shortfall is addressed, property demand will remain extremely high in a sector of low supply

An immediate opportunity to buy UK property

With the pound experiencing a significant degree of volatility, it presents an unmissable opportunity for international investors to buy UK property now.

At Select Property Group, we’ve seen a number of investors in recent years use fluctuations in exchange rates to buy multiple properties, taking advantage of greater levels of affordability.

Strategically choosing to invest and enter the market now means investors give themselves the best opportunity to achieve higher returns in the long-term.

Source: Select Property

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No deal Brexit would cause pound to crash, say Bank of England

The Bank of England has warned the pound would crash, inflation soar, interest rates would have to rise and Britain’s growth would plummet in the event of a no deal disorderly Brexit.

The apocalyptic outcome, contained in the Bank’s analysis of various EU withdrawal scenarios, would also see unemployment skyrocket.

In the event of a disorderly no deal, no transition Brexit, Britain’s GDP could fall by 8%, according to a worst case scenario analysis by the Bank.

The unemployment rate would rise 7.5%, inflation would surge to 6.5% while interest rates would rise as high as 5.5%.

House prices are forecast to decline 30%, while commercial property prices are set to fall 48%. The pound would fall by 25% to less than parity against both the US dollar and the euro, according to the bombshell report.

Prime Minister Theresa May is aiming to convince sceptical MPs to back her EU withdrawal agreement she reached with Brussels. Parliament is set to vote on the deal on December 11 and if the deal is not approved it will see the UK lose the transition period.

The Bank’s doomsday analysis comes hours after the Government released its own impact assessment, which found that withdrawal from the EU under Theresa May’s plans could cut the UK’s GDP by up to 3.9% over the next 15 years.

But leaving without a deal could deliver a 9.3% hit to GDP over the same period, said the analysis produced by departments across Whitehall. And the UK will be poorer in economic terms under any version of Brexit, compared with staying in the EU.

The Bank of England added that in the event of a disruptive Brexit, where there is no change to border trade or financial markets, GDP may fall 3% from its level in the first quarter in 2019.

In this scenario, the unemployment rate will hit 5.75% and inflation rises to 4.25%.

House prices decline 14% and commercial property prices fall 27%. The pound would fall by 15% against the US dollar to 1.10.

However, major British banks have “levels of capital and liquidity to withstand even a severe economic shock that could be associated with a disorderly Brexit”, the Bank concluded from tests of banks’ financial resilience.

Britain’s banking system is “strong enough to continue to serve UK households and businesses even in the event of a disorderly Brexit”, the Bank said.

Source: iTV