Beleaguered pound rallies as stocks gain
The beleaguered British pound was among the risky assets that staged a rally yesterday, along with stock markets as better-than-expected data from China and Europe helped ease some of the despondency over growth that has fed into markets.
The pound, which has been pummelled by the prolonged impasse over Brexit, bounced back from three-year lows against the dollar that it hit on Tuesday and it rallied 1pc to trade above $1.22 for the first time this month.
Against the euro, the pound gained 0.4pc to 90.45p.
"Mostly reflecting the rising chances of a no-deal Brexit, sterling has been one of the worst-performing major currencies in the past few months," said Capital Economics analyst Oliver Allen.
A poll published by Reuters yesterday said that the pound could rally as much as 6pc against the euro if Britain manages to strike an exit deal, something that looks more likely after MPs took control of the parliamentary agenda and defeated PM Boris Johnson in a vote.
In the United States, Europe and Asia, stock markets rallied after a day in the red on Tuesday, while safe-haven US Treasuries, where yields have been driven to record lows as investors sought safe assets amid an uncertain economic outlook, saw yields rise in the benchmark 10-year sector.
The dollar, which has also benefited from safe-haven status and a weak euro, also dropped.
Data from China that showed the country's services sector expanded at its strongest rate in three months provided an economic underpinning for the gains in Asia, while a move by Hong Kong leader Carrie Lam to withdraw an extradition bill that had led to months of protests was also seen as supportive for markets.
Despite the positive mood across markets yesterday, there are major risks ahead - many are centred on Europe, where the European Central Bank (ECB) policy meeting later this month is looking less like a slam-dunk commitment to restarting bond purchases.
"If the ECB were to cut the policy rate without embarking on QE-II, markets would be disappointed. Crucially, driving rates a lot deeper into negative territory would be ineffective and could even backfire," said Shweta Singh, head of global macroeconomics at TS Lombard.