Portfolio

FX round-up: Sterling enjoys Friday cheer, but no sign of Brexit volatility easing

By Andrew Schonberg

Date: Friday 21 Oct 2016

FX round-up: Sterling enjoys Friday cheer, but no sign of Brexit volatility easing

(ShareCast News) - Sterling turned in a somewhat chipper performance on most of its main crosses on Friday, closing out a week of volatility thanks to chronic Brexit jitters that show no sign of abating.
At about 18:20 BST, sterling was down 0.2% to $1.2230, but had traction against the European Union's currency to be up 0.38% to €1.1255.

"Today marked the end of a two day EU summit (in Brussels), which seemed to be as much about ignoring the UK's wishes as anything," said IG market analyst Joshua Mahony in a statement.

UK Prime Minister Theresa May trotted out her familiar line of expecting difficult moments ahead in Brexit saga, and remained optimistic of achieving a deal correct for the UK going forward.

"I firmly believe that if we approach this in a constructive spirit, as I am, then we can deliver a smooth departure and build a powerful new relationship that works both for the UK and for the countries of the EU," May said.

However, the markets, continued IG's Mahony, remained prone to volatility, which was driven by the jitters that seem to take each piece of running Brexit commentary as either a make or break moment.

"The PM calls for increasingly closer trade ties in a post-Brexit world than pre-Brexit, yet going by recent behaviour at the EU, we may not even be on speaking terms," he opined.

Peter Read, co-founder of trading network Pelican, noted traders' mostly bearish view of sterling, which he penned as "unsurprising" given prevalent uncertainty in the market.

"Theresa May's hard Brexit positioning may be thawing, as it becomes clearer what damage an 'absolute' break from Europe could inflict upon the economy," Read added.

"It was interesting to note that the ECB refrained from commenting on the future of its QE programme yesterday, giving the pound some breathing space against the euro. It would appear sterling is not the only currency under pressure."

Also at about 18:20 BST, sterling was up against the aussie, loonie, kiwi and rand, but lost ground against the yen.

Meantime, the US dollar made modest gains against the usual commodity currencies, but was down 0.01% to 103.94 yen. The dollar-spot index was up 0.43% to $98.739, having hit an eight-month high on Friday.

"With Fed (Reserve) hiking the odds of another rate hike in December, the only way for the (dollar-spot) index is to move higher," said ThinkMarket's chief markets analyst, Naeem Aslam.

That would put pressure on the price of gold, at least, said Aslam.

In other UK events, Office for National Statistics said Britain's public finances had a bigger-than-expected deficit in September of £10bn, up 14.5% from the deficit in the same month a year ago. Economists had expected a deficit of £8.5bn.

Elsewhere, markets continued to digest ECB chief Mario Draghi's comments on Thursday.

At a press conference after the ECB decided to keep policy unchanged, Draghi hinted QE would not be ended abruptly, but he shied from saying whether it would be extended or wound down.

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