Monday 21 January 2019

Brexit briefing: Transition deal for the pound may already be in the bag

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For investors in the pound, it looks as though a Brexit transition deal is already in the bag.

While low volatility is being seen across Group-of-10 currencies as markets slowly return from holiday mode, the pound's case is striking as a European Union summit in March is seen as a deadline to agree a transition with the bloc to ensure banks with London HQs don't jump ship. Still, three-month volatility on cable hit the lowest since December 2014 on Friday.

"Fairly strong expectations that a post-Brexit transition phase will be agreed early in 2018 could be lessening volatility," said Jane Foley, head of currency strategy at Rabobank. "That said, I would see the potential for greater volatility in the pound in 2018 relative to some other G-10 currencies given the potential for political uncertainty."

The pound has climbed above $1.35 on Brexit-talks optimism and expectations for another interest-rate rise from the Bank of England. It could fall back if the March summit fails to yield an agreement on transition as it would raise doubts about meeting an October deadline to get an outline on the future relationship with the EU, said Nick Verdi, head of Group-of-10 currency strategy at Standard Chartered Plc.


Britain facing subdued exit

Britain's economy looks set for a subdued run-up to Brexit, according to a range of indicators that paint a mixed picture at the start of the country's last full year in the EU.

Forecasters generally think the world's sixth-largest economy will continue to expand at a slow but steady pace- a better prospect than the gloomy predictions after the shock vote. It is likely to lag behind the eurozone and most of its G7 counterparts. Forecasts range from just 0.3pc to 2.2pc with a central view of 1.3pc, according to a Reuters poll of economists.


UK car sales hit by slump

UK car sales suffered their biggest annual slide since the global recession, stunted by Brexit's impact on buyer confidence and scepticism over the emissions of diesel models.

Registrations fell 5.7pc to 2.54 million, the steepest drop since 2009, according to the Society for Motor Manufacturers and Traders. Demand for diesel cars slumped 17pc, with a swing back to petrol models leading to the first annual increase in carbon emissions since 1997.

The decline from record sales in the last two years comes amid uncertainty about Brexit.


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