FX round-up: sterling slides on UK political uncertainty
By Sean Farrell
Date: Monday 29 Jan 2018
(ShareCast News) - Sterling slipped against the dollar and the euro after fresh concerns about political uncertainty in the UK and a rebuff by the EU over Britain's position during a Brexit transition period.
The pound fell against all major currencies after weekend reports that Prime Minister Theresa May could face a leadership challenge with her Conservative MPs divided over the course of Brexit.
The EU also ruled out Britain having a say on policy matters after March 2019 when the country will start an interim period that could last two years as it prepares to leave the bloc.
"After weeks of merciful quiet, it looks like the UK/EU negotiations will restart in a spirit of mutual acrimony," said IG analyst Chris Beauchamp.
"The EU's frustration with the lack of a clear British offer has been reflected in their decision to deny the departing nation any official say during the transition period. This has been enough to take some heat out of sterling's rally, with the euro gaining against the pound and cable dropping back," he added.
Sterling fell 0.7% against the US dollar shortly after midday in London and dropped 0.45% against the euro to 88.13p - the third straight day of declines.
The pound's weakness followed a run of gains in 2018 that saw it touch $1.4345 on 25 January - the strongest showing against the referendum result showed Britain was leaving the EU.
Sterling was helped against the dollar by comments from US Treasury Secretary Steven Mnuchin who said a weak dollar was good for trade.
Economists at Investec said the dollar's decline could support the pound and the euro over the coming year. Sterling strengthened in January as traders became less nervous about Brexit risks.
Despite recent jitters, "evidence shows that January's moves in the pound are usually a good lead indicator of direction over the rest of the year," they said.
"The US dollar has clearly moved out of vogue since the start of the year and as such our end-2018 targets for the euro and the pound, of $1.22 and $1.40, respectively, are under review," they said.
In the Asian session earlier, the yen held gains as Japan currency chief Masatsugu Asakawa said Tokyo would not manipulate the yen.
Overnight, the Canadian dollar pared Friday's gains versus its US counterpart, after Friday's data included a larger than expected monthly drop in the consumer price index.
"For now, no news is good news from NAFTA negotiations, which saw some fairly positive headlines yesterday when US lawmakers attending talks in Montreal expressed optimism about the chances of reaching a deal," said analysts at Monex Europe, looking ahead to the week's major data release for the 'loonie' as Wednesday's monthly gross domestic product release.
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