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Pound goes on rollercoaster ride after Brexit draft deal

Pound goes on rollercoaster ride after Brexit draft deal

British one pound sterling coins and Euro coins are arranged in front of a British 10 pound sterling note. (Justin TALLIS/AFP)

LONDON: The British pound had a tumultuous session on Thursday (Oct 17) as a draft Brexit deal between London and Brussels sparked both hope and scepticism in a volatile forex market.

Sterling soared to within a whisker of US$1.30, striking five-month peaks, when news flashed across traders' screens that the European Union had reached a draft Brexit withdrawal deal with London.

The pound held on to most of those gains for a while, absorbing a bout of profit-taking, but then the currency plunged into negative territory when it dawned on investors that there was no guarantee of UK parliamentary backing for the agreement.

"After the initial relief that the UK government and EU have done a deal, markets are worried that it still does not have enough support to get through parliament on Saturday," independent economist Julian Jessop told AFP.

By the end of the European business day, the currency was pretty much back to where it started.

'STILL CHANCE OF NO DEAL'

It is unclear how many of Prime Minister Boris Johnson's Conservative MPs will back the deal when he brings it to lawmakers for approval Saturday, and whether the opposition will try to vote it down or attempt to force a fresh referendum.

"There is still a chance for a no-deal Brexit - although the more likely scenario would be for the Prime Minister to follow the law and request the EU for a Brexit deadline extension, which then opens up more uncertainty," said Fawad Razaqzada at Forex.com.

Northern Ireland's hardline loyalist DUP said on Thursday it was "unable to support" the draft deal.

A pre-emptive DUP announcement to the same effect issued before the draft deal had already weighed on sterling, before news from Brussels gave the currency wings, if not for long.

"The Brexit agreement dream has been shattered by the DUP, after reports have surfaced claiming they are still unwilling to back Johnson and his EU divorce agreement," said Sebastien Clements, a currency analyst at OFX.

While the pound stabilised late in the session, "all it takes is a leak from Westminster to restart the market chaos", he said.

EVEN WALL STREET LIKES IT

The London stock market, which usually moves in the opposite direction from sterling, enjoyed a small rise on Thursday, becoming the day's star performer in otherwise lacklustre European equity trading.

On Wall Street, the Dow Jones index was a touch higher in late morning New York business, with analysts reporting support from Brexit developments even across the Atlantic.

"US stocks are higher in early action, as news of a possible breakthrough in Brexit negotiations is upping global sentiment," said analysts at Charles Schwab.

Earlier in Asia, most markets ended in the red, with traders unable to take advantage of weak US retail data that raised the chances of another Federal Reserve interest rate cut.

Comments in the Fed's Beige Book update on the economy also pointed to a slowdown in the world's biggest economy.

Oil prices fell as data pointed to a sharp rise in US stockpiles that reinforced worries about the impact on demand from the China-US trade war and the global economic slowdown.

Key figures around 1535 GMT:

 

Pound/dollar: UP at US$1.2836 from US$1.2832 at 2100 GMT

Euro/pound: UP at 86.58 pence from 86.28 pence

Euro/dollar: UP at US$1.1114 from US$1.1033

Dollar/yen: DOWN at 108.65 yen from 108.76 yen

 

London - FTSE 100: UP 0.2 per cent at 7,182.32 points (close)

Paris - CAC 40: DOWN 0.4 per cent at 5,673.07 (close)

Frankfurt - DAX 30: DOWN 0.1 per cent at 12,654.95 (close)

EURO STOXX 50: DOWN 0.3 per cent at 3,588.62

 

Tokyo - Nikkei 225: DOWN 0.1 per cent at 22,451.86 (close)

Hong Kong - Hang Seng: UP 0.7 per cent at 26,848.49 (close)

Shanghai - Composite: DOWN 0.1 per cent at 2,977.33 (close)

 

Brent North Sea crude: DOWN 0.6 per cent at US$59.06 per barrel

West Texas Intermediate: DOWN 0.5 per cent at $53.10 per barrel

Source: AFP/de

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