Pound wobbles as Brexit speculation tests investors' nerves
Uncertainty sees currency fluctuate as IMF warns a no-deal Brexit would send the British economy into severe shock
London —The British pound gyrated on Tuesday as rumours and uncertainty about the Brexit endgame played havoc with investors’ nerves.
Prime Minister Theresa May launched a new diplomatic push to avert a no-deal Brexit and secure a new delay to the date for leaving the bloc.
Sterling bobbed briefly above 1.31/$ in late-morning foreign exchange deals, but then fell back against the dollar.
“In a clear example of how headline driven the pound is at present, there’s been a swift move higher and just as quick a drop back lower as the latest round of Brexit rumour and counter-rumour hit the news wires,” said David Cheetham, an analyst with XTB.
He cited reports, later denied, that German Chancellor Angela Merkel was willing to grant a five-year time limit on the backstop, which saw traders rush to buy the pound in anticipation of a breakthrough.
“However, the gains were fleeting and they were promptly handed back when it was confirmed the reports were untrue and we can expect more of this sort of thing in the coming days,” Cheetham predicted.
Belgium said on Tuesday it is to host a mini-summit of the EU members most exposed to the dangers of a no-deal Brexit on Wednesday. Also on Tuesday, the IMF issued a stern warning, saying a no-deal Brexit would send the British economy into severe shock.
In a whirlwind tour, the British premier met Merkel in Berlin and was to see President Emmanuel Macron in Paris in a last-gasp bid to keep her country from crashing out on Friday.
The pound is set for “another wild week” amid uncertainty about the outcome of the talks, said FXTM analyst Lukman Otunuga. “When dealing with Brexit, one should always expect the unexpected and this will remain the mantra until more clarity is provided,” he said.
European and US stock markets, meanwhile, dropped as traders detected cooler relations between the US and China over trade than they had previously hoped for, with flaring trade tensions between the US and the EU adding to worries.
President Donald Trump on Tuesday lashed out at the EU, vowing to slap tariffs on billions in EU imports in retaliation for subsidies to aviation company Airbus.
Markets, meanwhile, remain on tenterhooks on the eve of the European Central Bank’s interest rate decision and publication of the US Federal Reserve’s meeting minutes.
Earnings season also kicks off in earnest this week, with expectations low but observers hoping for some positive forward guidance.