Sterling slips on Brexit vote delay, dollar claws higher

A bank employee counts pound notes at Kasikornbank in Bangkok October 12, 2010. — Reuters pic
A bank employee counts pound notes at Kasikornbank in Bangkok October 12, 2010. — Reuters pic

LONDON, Oct 21 — Sterling fell as much as 0.5 per cent after Britain’s parliament delayed a crucial vote on the government’s new Brexit plan, while the dollar, which is on course for its worst month since January 2018, clawed higher.

It was little surprise to see sterling backing off 5-month highs today after “super-Saturday” failed to live up to its billing, ensuring more Brexit drama to come.

Asian trading had delivered an instant hit and by the time European trading settled, the pound was down 0.4 per cent to US$1.2920 (RM5.40). It had closed last week at just below US$1.30 having soared 6.5 per cent since British Prime Minister Boris Johnson struck a new EU divorce deal on October 10.

“The number one issue now is whether they are going to allow the vote (on the deal) to happen later,” said Saxo Bank’s head of FX strategy John Hardy, who added the FX market now seemed to be betting on the deal being approved.

“You could see further (upward) reaction if that is the case but also quite some downside if there is a delay and we get back into what happens next.”

Despite Saturday’s delay of the deal vote, which meant Johnson had to begrudgingly ask the EU for another extension of the Brexit deadline, UK Foreign Secretary Dominic Raab told the BBC that he was confident enough lawmakers would pass the deal.

The political manoeuvring puts the timing of the whole process in question yet again, even though markets seem assured that it significantly reduces a ‘no deal’ Brexit, considered by many to be the worst-case scenario for the UK economy.

“Although many eyes are still on Brexit, there is not so much nervousness in the market as the risk of a no-deal Brexit has actually reduced over the weekend,” said Shinichiro Kadota, senior forex and rates strategist at Barclays in Tokyo.

Goldman Sachs said it sees the chance of a ‘no deal’ Brexit reduced to just 5 per cent, from 10 per cent previously.

Elsewhere, currency moves were limited though the last few weeks has seen some sizeable shifts taking place.

The dollar is down 2.5 per cent this month against a basket of top currencies which, if it stays that way, would be its worst month since January last year.

It edged up against the euro to US$1.1157 per euro but was little changed at 108.48 to the safe-haven yen. The yen has been weak too, last week hitting a 2-1/2-month low.

Central focus

The Bank of Japan meets later this month and could nudge its interest rates even deeper into negative territory, while Thursday will be Mario Draghi’s last meeting in charge at the European Central Bank.

China’s yuan firmed on Monday after the central bank fixed the daily midpoint at its strongest in five weeks, and a comment from the central bank chief that the exchange rate was at the “appropriate level” reinforced market sentiment.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.0680 per dollar. It was 10 pips firmer than the previous fix of 7.0690, and the strongest since September16.

In a statement posted on the International Monetary Fund website on Saturday, PBOC Governor Yi Gang said the yuan is at “an appropriate level” based on economic and market fundamentals.

“Depreciation since the beginning of August has been driven and determined by market forces and reflects shifts in market dynamics and volatilities in global foreign exchange markets amid recent global economic and financial developments and escalating trade tensions,” Yi said. — Reuters

Related Articles