Saturday , July 2 2022

Sterling under pressure with Brexit uncertainty weighing


Britain's currency took a hit early in the London trading day with investors anxious as the country entered a crucial period for Brexit.

Sterling dropped 0.77 percent against the US dollar to $ 1.2734, striking the weakest level in roughly two weeks. The currency also fell against the euro, down 0.3 percent to € 1,126.

EU leaders agreed on the weekend the terms of the UK's exit from the block. Theresa May, prime minister, now faces the daunting task of getting her plans through UK parliament. Her own party is divided on the deal and the Democratic Unionist Party, on which Mrs. May relies for a working majority, has vowed to reject the pact.

Investors have dealt with near constant swings up and down in the pound as analysts have assessed the latest twists and turns in Brexit dealings. The currency has slumped more than 11 percent from the year-high of $ 1,4376, which hit in April.

"The tension related to the upcoming Brexit vote is palpable and it amplifies the degree to which the pound is vulnerable to intraday swings in global risk appetite and geopolitical news," said Stephen Gallo, head of European FX strategy at BMO.

"The degree to which sterling is positively correlated with risk appetite is amplified."

Barclays warned earlier this week of "asymmetric" risks to the pound around the parliamentary vote on Brexit.

"A rejection of the agreement by a wide margin increases the probability of a no-deal Brexit, and should see significant pound-downside of 5-10 percent on a cumulative basis," the bank said. "On the other hand, a small margin should see the withdrawal deal being eventually ratified and the Pound rising toward $ 1.32- $ 1.33."

Uncertainty over Brexit was underlined on Monday by Donald Trump, US President, who appeared to suggest that the Brexit deal would make it difficult for the UK to reach a pact trade with America.

"Sounds like a great deal for the EU," Mr Trump told reporters. "Right now as the deal stands, they may not be able to trade with the US, and I do not think they want that at all. That would be a very big negative for the deal. "

Source link