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Pound rallies on Brexit delay hopes before 'no deal' vote

Pound rallies on Brexit delay hopes before 'no deal' vote

The British pound fell against the euro and dollar on Oct 14, the start of a pivotal week for Britain and the European Union to strike a Brexit deal. (AFP/PAUL ELLIS)

LONDON: The British pound recovered strongly on Wednesday (Mar 13) as traders were willing to bet that the UK's EU exit will be pushed beyond its Mar 29 deadline.

Sterling's rebound came hours ahead of a vote in Britain's parliament which is expected to soundly reject a "no deal" Brexit.

If so, a further vote will determine whether London should ask the EU for more time beyond Mar 29 to sort out its departure from the bloc.

"The potential delay of Brexit is what is helping to hold up the pound, but by the same token, the uncertainty is limiting its upside potential," said Fawad Razaqzada at Forex.com.

"If it feels like the UK government is going around in circles, it is because it is," he added.

'SNIFFING OPPORTUNITY'

Sterling, and also London's stock market, had taken a brief knock after MPs on Tuesday rejected for a second time a Brexit withdrawal deal negotiated by Prime Minister Theresa May, despite her obtaining last-minute added reassurances from EU officials.

But both recovered as the European trading day wore on, with the pound up more than one percent against the dollar on the day, and its progression against the euro only marginally less vigorous at 0.9 per cent.

"The pound has been the main area of volatility when reflecting Brexit developments, with the FTSE 100 remaining somewhat stable despite the constant shifts," said Joshua Mahony, senior market analyst at IG trading group.

Sparking the pound's rally, meanwhile, was "markets either sniffing an opportunity for a second referendum or a deal passing," said Viraj Patel, a foreign currency and macroeconomics strategist at Arkera, in a tweet.

NOT A CARE

Both the pound and the FTSE held up even as Britain's finance minister Philip Hammond slashed the forecast for economic growth this year due to Brexit uncertainty.

The UK economy is forecast to grow by 1.2 per cent this year, down on the government's prediction of 1.6 per cent in October, Hammond said as he gave a budget update.

Elsewhere on Wednesday, Asian indices closed lower.

Eurozone stock markets ended the day higher across the board, and Wall Street also showed solid gains in the early New York afternoon, prompting Briefing.com analyst Patrick O'Hare to note that the US stock market was acting like it did not have a care in the world.

"It could care less that the UK's Brexit effort is a mess. It could care less that Boeing is dealing with a PR nightmare as multiple countries have grounded the 737 MAX," he said, adding investors also appeared unfazed by declining earnings estimates and global growth slowing down.

O'Hare said investors appeared to be happy that Fed interest rates probably will not rise any time soon, a supportive factor for stocks.

Oil was also well-bid, with the US benchmark WTI contract reaching a multi-month high driven by falling American stocks and global supply uncertainty.

Key figures around 1640 GMT:

 

Pound/dollar: UP at US$1.3220 from US$1.3062 at 2100 GMT on Tuesday

Euro/pound: DOWN at 85.49 pence from 86.46 pence

Euro/dollar: UP at US$1.1305 from US$1.1292

Dollar/yen: DOWN at 111.22 yen from 111.29 yen

 

London - FTSE 100: UP 0.1 per cent at 7,159.19 points (close)

Frankfurt - DAX 30: UP 0.4 per cent at 11,572.41 (close)

Paris - CAC 40: UP 0.7 per cent at 5,306.38 (close)

EURO STOXX 50: UP 0.6 per cent at 3,323.45

New York - DOW: UP 0.6 per cent at 25,703.54

 

Tokyo - Nikkei 225: DOWN 1.0 per cent at 21,290.24 (close)

Hong Kong - Hang Seng: DOWN 0.4 per cent at 28,807.45 (close)

Shanghai - Composite: DOWN 1.1 per cent at 3,026.95 (close)

 

Oil - Brent Crude: UP 44 cents at US$67.11 per barrel

Oil - West Texas Intermediate: UP 94 cents at US$57.81 per barrel

Source: AFP/de

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