Monday 23 April 2018

No consensus over outlook for sterling

BlackRock said last week that sterling's near-term direction remained unclear, even as a big move is expected. Photo: Stock image
BlackRock said last week that sterling's near-term direction remained unclear, even as a big move is expected. Photo: Stock image

Charlotte Ryan

Currency traders are cautiously awaiting signs of progress toward a Brexit transition deal, as talks enter a crucial phase this week.

However, even if those expectations are met, any gains in the UK currency may be short-lived.

While UK Brexit secretary David Davis has expressed confidence that a deal on the exit terms and the transitional period is "within reach" ahead of the European Union summit on Thursday and Friday, investors remain far from convinced.

BlackRock said last week that sterling's near-term direction remained unclear, even as a big move is expected.

A Barclays survey found that most respondents didn't expect an agreement until at least October.

Nomura analysts expect a deal this week and recommend a long position on the UK currency against its Canadian counterpart. Aberdeen Standard Investments and Rabobank see any pound appreciation as brief, given longer-term challenges faced by Britain including reaching a post-Brexit trade pact with the EU.

The Bank of England's meeting on Thursday is also in focus, with investors watching for hints that it is ready to raise interest rates as early as May.

Sterling was around $1.3920 on Friday and near 88.25 pence against the euro.

Japan's business leaders pushed both sides to agree a Brexit transition quickly for the sake of investment certainty.

The biggest stumbling block remains the Irish Border. UK Prime Minister Theresa May has said no leader there could accept a deal that includes a trade barrier between Britain and Northern Ireland, but has also committed to maintain open trade within Ireland.

Bloomberg

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