Marketing No Comments

GBP: British pound tumbles as Brexit talks end in disarray

  • The British pound index declined after the third round of talks ended without a deal.
  • The UK side said the EU insistence of a “level playing field” was to blame.
  • The UK has until June 30 to request for an extension of the transition period.

The British pound dropped sharply after the European Union and the UK concluded the third round of negotiations. The pound index declined by more than 2% while the GBP/USD pair declined by almost 60 basis points.

British pound falls as Brexit talks end in disarray

The British pound sank today after the third round of talks ended in disarray as I had predicted. In a statement, David Frost, the chief UK negotiator said:

“I regret however that we made very little progress towards agreement on the most significant outstanding issues between us.”

In the statement, he said that the European Union had refused to engage on creating a good Free Trade Agreement (FTA) with the UK. He said that the main obstacle was that the EU insisted on including a set of unbalanced proposals that would bind the UK to EU laws.

In another statement, Michel Barnier, said that talks with the UK were disappointing. In his statement, he said that the EU was not going to seal a new trade deal until a level playing field was established. He said:

“We’re not going to bargain away our values for the benefit of the UK economy.”

Key Brexit issues

There are several differences between the UK and the European Union. The most basic one is that the UK insists on being an equal of the European Union. In a statement last week, Barnier said that the UK was a country of 66 million people against the EU’s population of about 450 million people.

The biggest difference between the two is that the UK insists on a free trade agreement (FTA) like the one the EU has with Canada. The Canadian deal removes most tariffs and quotas while leaving Canada to regulate itself.

The EU has rejected this this idea, saying that such a deal would not work because of the volume of trade involved. While the EU and Canada do business worth more than €72 billion, the UK exports goods worth more than £291 billion to the European Union. This represents about 44% of the total UK exports.

The EU argues that allowing the UK to regulate itself will be unfair to companies in the European Union. As such, it proposes an agreement where the UK stays within the EU regulations.

There are other differences in the Brexit talks. For example, the UK has said that it wants to control its rich fishing waters. The EU has rejected this because its fishermen catch more than 50% of their fish from the UK waters. In the statement, Frost said:

“It is hard to understand why the EU insists on an ideological approach which makes it difficult to reach a mutually beneficial agreement.”

The challenge for the UK is that Boris Johnson has said he will not ask for an extension to the transition period. With the June 30 deadline reaching, analysts believe that chances of leaving without a deal are high.

By Crispus Nyaga

Source: Invezz

Autumn statement
Marketing No Comments

Pound Sterling in Recovery Mode against Euro but Faces Cocktail of Risk Ahead

The Pound-to-Euro exchange rate moved back above the 1.14 level on Thursday and looks set to recover most of the sharp decline it experienced on Tuesday, a decline that coincided with a broad-based retreat in stocks and oil prices.

For Sterling the broader picture therefore matters and the near-term outlook rests on developments in oil and stock markets, while for the Euro the outcome of a looming European Council meeting on financing a coronavirus economic package will be watched over coming hours.

“Sterling rose against the weaker Euro but was little changed versus the Greenback following a spate of negative news on the world economy,” says Joe Manimbo, a foreign exchange analyst at Western Union. “Oil and stocks for now holding their chins higher translated into support for the Pound.”

From a fundamental viewpoint, we note that oil price dynamics have been impacting Sterling negatively of late, via their ability to shift the dial of broader risk sentiment across the market.

Oil has come under scrutiny this week after futures of West Texas Intermediate crude, the North American benchmark, fell below zero amid an unprecedented supply glut that’s pushed storage capacity constraints to critical levels. Many storage facilities have filled up amid the global economic stoppage brought on by the coronavirus but the barrels are still coming thick and fast, which is stoking increased prices for storage space that has exacerbated the pressure on the market for barrels sold and delivered in the here and now.

“As the front month in futures flips over to June, WTI is under $12p/bbl and Brent under $18,” says Kit Juckes, chief FX strategist at Societe Generale. “If freight rates doubled in floating storage, the contango would have to widen to $25.65. This would imply front month Brent and WTI at $11.35\bbl and $7.10\bbl respectively.”

Brent prices followed WTI crude prices lower on Monday and Tuesday, although not nearly as low as the North American benchmark, and the Pound-Dollar rate followed the both south despite the UK being a net oil importer. Lower oil prices are an economic stimulus for the UK in normal times, rather than an economic cost, but the Pound-Dollar rate still has an uncanny correlation with crude prices that are being widely tipped to hit new lows before long as the global economic shutdown continues.

Monday’s episode revealed that it now costs more to store a barrel of oil than it does to buy one for delivery in the here and now, which is a situation that’s not yet reflected in the price of June 2020 crude oil futures. Brent and WTI were trading up around $20 and $13 per barrel overnight for the June month but as the futures expiry date in draws closer in late May there’s a chance downward pressure could build again, and key to whether it does will be daily changes in the cost of storage space. Those freight rates will themselves be highly sensitive to progress among major economies toward easing the ‘lockdown’ measures used to contain the coronavirus.

“It remains to be seen whether the price of Brent will (or will not) be as big a casualty of the current oil market dynamic as its WTI cousin. There are risks that the US supply glut could be fully replicated elsewhere, and it’s not clear that Saudi Arabia’s “involvement” in all of this will dissipate quickly,” says Stephen Gallo, European head of FX strategy at BMO Capital Markets.

Sterling might meanwhile need a negative outcome from the looming European Council meeting in order to avoid a fresh turn lower against the Euro.

The Euro exchange rate complex has been weighed down by the fragmented and fractious European response to the coronavirus crisis and the Euro bloc’s leaders are under immense pressure to agree a common fiscal solution on Thursday, which would very likely be a positive influence on the Euro if it happens.

Financial stability on the ‘periphery’ is at stake in the short-term and the unity, if-not existence of the bloc itself, is at risk on a longer-term horizon.

A falling oil price and European ‘solidarity’ would weigh on the Pound-Dollar rate while lifting the Euro-Dollar rate in what would be a toxic cocktail for the Pound-Euro rate that risks vindicating some bearish views on the outlook for Sterling.

Technical analysts at Commerzbank have tipped the Pound-Euro rate for steep falls in the weeks and months ahead, falls so steep they might potentially see Sterling back at its lowest levels since the 2008 crisis.

A down-day on Thursday, for any reason, would keep the 2020 downtrend in the Pound-Euro rate alive while bringing 2008 lows a step closer.

“EUR/GBP has risen to the April 7 high at .8865 as expected. If it were to be overcome, the March 20 low at .8994 would be back in play,” says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank, referring to the 1.1280 and 1.1118 levels of the Pound-Euro rate respectively.

Jones advocated this week that Commerzbank clients sell the Pound-Euro rate around 1.1412 and is looking for the 1.1118 to give way in the first instance. She’s also tipping the Pound-Euro rate to fall to 1.0200 over the next three weeks or so, where it could remain for months after, but says a move above 1.1519 would negate these forecasts.

Written by James Skinner

Source: Pound Sterling Live

Autumn statement
Marketing No Comments

British pound soars as BOE rules out printing of money

  • British pound rose on reports that Boris Johnson was in the Intensive Care Unit (ICU)
  • The pound rose even as the number of Coronavirus cases increased and Debenhams went into administration.
  • The pound rose after Andrew Bailey, BOE Governor, ruled out printing of money

The British pound rose against the euro and the US dollar as the market ignored news that Boris Johnson’s health was deteriorating. The prime minister, who was diagnosed with Coronavirus two weeks ago, is in an intensive care unit of a London hospital.

While he is alert, government business is being carried out by Dominic Raab, the Foreign Secretary. The British pound index, which measures the strength of the pound against other currencies rose by more than 1%.

More bad news from the UK

The pound rose in a day that the UK received significant bad news. The number of Coronavirus cases continued to rise. According to World of Meters, the UK has confirmed more than 53k cases and more than 5,000 deaths. The number of infections is rising, albeit at a slower rate.

Meanwhile, more UK companies are getting into trouble. Yesterday, Debenhams, the famed retailer, announced that it would move into administration. The company, which has more than 22,000 employees said that it hoped that the action would help it remain afloat. This announcement came a week after BrightHouse and Carluccio’s moved into administration.

Experts believe that many retailers will be forced to go out of business unless the government intervenes. This is because while most of them are not doing any business, they are continuing to accrue costs like insurance and rent. In fact, some retailers like JD Sports, Primark, and Burger King have said that they won’t pay rent. If the cycle continues, it could affect the banking sector, and possibly lead to a bigger financial crisis.

Why the British pound is rising

The reason why the British pound is rising is that Andrew Bailey has committed not to print money to support the economy. Andrew is the new Bank of England governor.

In an opinion piece in the Financial Times yesterday, the governor said that it would not be beneficial for the bank to print money. He argued that this would increase inflation, which would go against the mandate in which the central bank was created. He said:

“Some MPC actions result in the creation of central bank reserves. These reserves are not being created with the aim of paying for the government deficit, as under monetary financing. They are a consequence of independent central bank policy actions to deliver monetary and financial stability.“

A number of central banks, including the Federal Reserve, have been criticised for printing money to support the economy. Two weeks ago, the Fed launched its open-ended QE program. The new program has seen the bank expand its balance sheet by more than $2 trillion. In contrast, the central bank increased its balance sheet by just above $4 trillion in the past financial crisis.

Some quarters in British press and academia criticized this position. The Financial Times dedicated its editorial page arguing that printing money was a valid reason for the bank to print money. The paper argued that while printing money would stir inflation, the bank had tools to lower it. They said:

“If trends restraining inflation go into reverse, central bankers have tools to combat rising prices. They can achieve this by raising interest rates or unwinding QE.“

This thinking was supported by Sir Charles Bean, of the London School of Economics, who argued that printing of money would help prevent large-scale unemployment. He also argued that the plan would not lead to significant inflation since the BOE, unlike the Bank of Zimbabwe, is an independent organization.

Lord King, the former BOE governor, also supported printing of money. He said that that the problem with inflation would happen if the government determined the amount of money to be printed and how it should be used.

By Crispus Nyaga

Source: Invezz

Autumn statement
Marketing No Comments

Sterling takes another big tumble as investors seek safety

The British pound fell sharply again on Monday as investors dumped currencies they consider riskier to own amid the coronavirus pandemic.

Sterling has been under pressure because of a massive wave of selling of most currencies other than the dollar, which is the world’s most liquid currency and the safe haven of choice when confidence evaporates from financial markets.

The pound has also been hit by investor concerns that Britain’s approach to dealing with the virus, which has seen a more staggered disruption to economic and everyday life than in other countries, is not the right one.

Britain’s large current account deficit has also made sterling vulnerable, while drastically poorer liquidity has exacerbated moves downwards.

Sterling fell as much as 1.6% to $1.1490 by 1550 GMT before recovering slightly.

Last week the British currency briefly touched a 35-year low of $1.1413.

Against the euro, sterling tanked by an even greater margin.

The euro added 2% to 93.61 pence, still some way off last week’s lows of 95 pence.

Some analysts have been impressed by the British policy response to the crisis, but say sterling has not benefited. The Bank of England has slashed interest rates to record lows, ramped up its quantitative easing programme and the government announced significant fiscal stimulus.

“The broken financial environment means that GBP is not able to respond to the proactive fiscal support undertaken by UK policy makers,” ING analysts said in a research note.

Kit Juckes, an analyst at Societe Generale, noted that according to positioning data, as of last Tuesday there had only been a small reduction in the long positions on the pound.

That would make the currency vulnerable to further falls as investors cut their long positions.

“Has the slide since Tuesday cleared the longs? It seems doubtful,” he said.

Currency markets were highly volatile again, with the dollar falling after the U.S. Federal Reserve announced an unprecedented scheme of credit support to help the United States economy.

The greenback later recovered some of those losses as stock markets resumed their fall and investors sought safer places to put their cash.

British flash Purchasing Managers Index survey data for March published earlier on Monday unsurprisingly fell into contraction, with the coronavirus expected to damage the economy further in the weeks ahead.

Reporting by Tommy Reggiori Wilkes

Source: UK Reuters

Marketing No Comments

Pound set for biggest weekly gain in a month

The British pound extended its rally on Friday and was on track for its biggest weekly gain in a month after the Bank of England’s decision to keep interest rates steady on signs of a post-election pick-up in growth.

But analysts said the rally may be short lived. The United Kingdom exits the European Union at 2300 GMT and faces negotiations on reaching a new trade and future relationship deal with the bloc by the end of 2020 – something the EU has said will not be easy.

“Looking ahead, there are more downside risks to the pound as investors gauge the progress of the Brexit negotiations,” said Morten Lund, a strategist at Danske Bank who expects euro/pound to rise to 86 pence over the coming months.

At the stroke of midnight in Brussels, the EU will lose 15% of its economy, its biggest military spender and the world’s international financial capital – London. Britain must begin charting a course for generations to come.

But in the final countdown to Brexit, the pound was still basking in the after glow of the Bank of England’s decision to hold interest rates on Thursday at Governor Mark Carney’s final policy meeting.

Sterling gained 0.8% to as high as $1.3245, its highest level in eight days on Friday. Against the euro, the British currency rose 0.2% to 83.88 pence.

On a weekly basis, the pound was on track for a second consecutive week of gains against the dollar and its best weekly performance since end December.

Risk reversals and implied volatility gauges for the pound signalled calm over the next few months, with both indicators holding near recent lows.

Analysts also attributed the pound’s strength to broad-based dollar weakness.

Reporting by Saikat Chatterjee

Source: UK Reuters

Marketing No Comments

Sterling rebounds on business surveys, weaker dollar

Sterling rebounded on Monday as investors who had sold the currency for safe havens after the United States killed Iran’s top military commander returned to the pound.

Analysts said an upward revision to a business survey supported the pound too while the focus for investors now shifts to a parliamentary debate on Brexit legislation on Tuesday.

“We’ve got some better than expected PMIs, but some of it (the move higher in sterling) has been sentiment-driven,” said Morten Lund, an analyst at Nordea. “It’s a bit surprising, but I think some of it is positioning.”

The Purchasing Managers Index survey for Britain’s services for December came in with a final reading of 50, better than the 49.1 reading forecast by economists polled by Reuters.

Optimism among companies has improved markedly since the Dec. 12 election, although the economy continues to stagnate, the PMI survey showed.

Investors have remained cautious about the pound since Prime Minister Boris Johnson’s Conservatives won a big majority in the vote. They worry about more political uncertainty down the road with Britain set to leave the European Union on Jan. 31 and the two sides then beginning negotiations on their future trading relationship.

RBC Capital Markets currency strategist Adam Cole noted that provisional January PMIs on Jan. 24 “will be more interesting as they will shed some light on the potential for a rebound in activity early in 2020 as political uncertainty cleared following the election.”

The UK parliament returns on Tuesday and will debate the Brexit bill, which includes a clause ruling out any extension of the transition period for trade talks beyond December 2020.

The pound rose 0.7% to as high as $1.3173 on Monday but remains below last week’s $1.32.

Sterling fell on Friday after the killing of Iranian general Qassem Soleimani in a U.S. drone strike at Baghdad airport, boosting demand for safe-haven currencies, including the dollar.

The pound gained 0.4% to 85 pence before settling at 85.105 pence. It remains some way off its more than three-year high of 82.78 pence per euro reached last month.

Some analysts think sterling is in for a drop.

Danske Bank analysts see the pound falling to around 87 pence per euro in three months because the Bank of England will soon cut interest rates by 25 basis points due to economic weakness.

“Our base case is that this happens in January, but since the BoE has hinted it may want a bit more post-election data to rely on, the cut may not come before the May meeting,” the analysts said in a note. They said investors were not pricing in more than a 50% probability of a cut by the end of 2020.

Reporting by Tommy Reggiori Wilkes

Source: UK Reuters

Marketing No Comments

Sterling falls against the dollar as UK economy slows but US picks up

The pound has fallen against the dollar as traders near the end of their week after survey data was better than expected in the US but painted a gloomy picture of the UK economy.

Sterling was trading 0.59 per cent lower against the greenback by 4.40pm, taking it to $1.283.

A falling pound alongside positive noises from China concerning a US trade deal helped the FTSE 100 end the day 1.22 per cent higher.

Traders sold off sterling following a worse-than-expected survey reading which showed that the UK private sector has suffered its biggest fall in output in over three years in November.

By contrast, US factory and services activity picked up pace this month, a survey from data firm IHS Markit showed.

The reading, which was better than analysts had hoped for, boosted the dollar. Against the euro, for instance, the dollar has risen 0.25 per cent to €0.906 by 4.40pm UK time.

Connor Campbell of trading platform Spreadex called the UK figures “nasty, nasty numbers”. He said they were “so bad that sterling was swiftly booted into the red”.

Andy Scott, associate director at risk assessor JCRA, said: “Sterling reacted negatively to today’s data which points to economic activity declining in November.”

He added that the reading supports the case made by the two Bank of England rate-setters who voted for a rate cut last month.

“The economy is clearly reflecting the strain placed on businesses from Brexit negotiations and the continuing state of flux,” he said, “added to which is a general election that includes one major party pushing for a relatively hard Brexit and radical socialist policy proposals from the other.”

Scott said the outlook for sterling “very much hangs on the outcome of the election, with the currency reacting positive to a number of voting intention polls that give the Conservatives a double-digit lead over the Labour party”.

A Tory majority is seen by most traders as a positive outcome for the pound as it increases the chances of Britain leaving the EU with a Brexit deal, which they hope would end some of the recent economic uncertainty.

By Harry Robertson

Source: City AM

pound Bank of England
Marketing No Comments

Bank of England Surprise sends Pound Sterling Lower

The British Pound was put on the back foot on Thursday, November 07 after two members of the Bank of England’s Monetary Policy Committee unexpectedly voted to cut interest rates at the Bank’s November policy meeting.

Michael Saunders and Jonathan Haskel became the first MPC members to vote for lower interest rates since the Bank last cut rates in August 2016.

The surprise votes suggest the Bank is leaning towards delivering an interest rate cut in the first half of 2020, unless a notable pick up in the UK’s economic trajectory is reflected in the data.

The Pound fell on the news, as currencies tend to fall when their issuing central bank enters an interest rate cutting cycle.

“Sterling was shocked lower by a dovish Bank of England, which voted 7-2 to leave rates on hold. It was a bit of a surprise in that two members voted for an immediate cut – Saunders and Haskell both opting to cut now. This leaves the door open for a cut to come soon, signals the direction of travel and was the first split since the summer of 2018,” says Neil Wilson, Chief Market Analyst at Markets.com.

Saunders and Haskel said their vote to cut interest rates was largely owed to their view that the UK’s jobs market has begun to deteriorate somewhat – while the UK retains an ability to generate wages and employment is at all-time records, the number of vacancies in the economy has shrank dramatically of late.

The drop in vacancies suggests the jobs market could soon deteriorate and cutting interest rates would offer the economy some support under such conditions.

However, for the majority of MPC members, the economy continues to perform along a path that is consistent with keeping interest rates unchanged at 0.75%, at least for now.

“If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation,” the MPC said in a statement.

But this in itself marks a departure from previous guidance at the Bank, where the expectation was that interest rates would rise in the future, particularly under an orderly Brexit scenario; now the talk is of rates having to be cut.

In short, the Bank has flipped into rate-cutting mode and this should offer some downside to Sterling, at least in the near-term.

The Bank’s MPC will have also noted that their commitment to raising rates in the future puts them out of step with their global peers, an outcome that might disadvantage the UK economy. The U.S. Federal Reserve has been cutting interest rates of late, the European Central Bank has restarted its money printing programme and the Bank of Japan this month signalled it was looking at cutting short-term rates.

“The Bank of England seems to have finally accepted that the world is in an easing cycle and it can’t fight this tide. We can safely say the hawkish bias has gone. Because we are at the start of an election campaign the Bank was never going to vote for a cut today. But had we not been, there could have been more members calling to ease. There is the age-old debate of whether it’s best to go for an insurance cut now to see off weaker growth etc, or to keep the powder dry for when/if it goes completely wrong,” says Wilson.

“The message from the BoE is pointing to the downside for the Pound. Surprising votes for rate cuts voicing concern over domestic & global risks.Given how the UK is such an international economy, this is understandable,” says Neil Jones, head of hedge fund FX sales at Mizuho.

Markets had been anticipating the BoE would not only leave rates unchanged but that it would do so unanimously, which might explain why Sterling tumbled when the decision was published.

Dissent on the MPC brings closer a majority that might be in favour of a rate cut, and markets are not prepared for that to happen any time soon.

The Bank of England also released their Monetary Policy Report today, which contains the Bank’s forecasts for economic growth, inflation and other economic variables.

These in themselves can have an impact on the Pound as it suggests how the Bank sees the economy evolving over time.

“Looking through Brexit-related volatility, underlying UK GDP growth has slowed materially this year and a small margin of excess supply has opened up. That slowdown reflects weaker global growth, driven by trade protectionism, and the domestic impact of Brexit-related uncertainties,” the report noted.

Compared to the earlier forecasts, the Bank has this month forecast end-2019 economic growth to be at 1.0%, up from 0.9% forecast in August.

The end-2020 growth forecast was lowered to 1.6% from 1.8% expected back in August.

Inflation for end-2019 is forecast at 1.4%, down from 1.6% forecast in August, while inflation for end-2020 has been cut from 2.1% to 1.5%.

These inflation forecast cuts are sizeable and will certainly in themselves present to markets a signal that the Bank is no longer looking to raise rates.

Indeed, these inflation expectations suggest the Bank could quite comfortably justify a rate cut over coming months.

The Bank’s forecasts are however conditioned that a Brexit deal, of the kind struck between the UK and EU, is ultimately passed in coming months.

“Reflecting government policy, the MPC’s projections are now conditioned on the assumption that the UK moves to a deep free trade agreement with the EU,” said the Bank in its MPR statement.

“For our economic base case, we expect Prime Minister Boris Johnson and the Conservative Party to win a majority of seats at the election. That should enable an orderly Brexit to happen on 31 January next year. In line with the MPC’s latest guidance, we look for the BoE to hike the Bank Rate in Q3 2020 followed by another hike in 2021, by 0.25bp each time. That would take the bank rate to 1.25% by end-2020. Of course, if the election ends in a hung parliament the BoE would change its tune fast and, could, as signalled in the updated guidance, even cut rates,” says Kallum Pickering, an economist with Berenberg Bank in London.

Written by Gary Howes

Source: Pound Sterling Live

Marketing No Comments

Pound climbs on General Election news but traders foresee rocky ride

The pound jumped today after it became clear the Labour party would back a December General Election, but it has since settled back down as traders steeled themselves for a volatile six weeks.

Sterling has had an extremely rocky few months. It hit a 45-year low against the dollar in August as Prime Minister Boris Johnson’s government looked intent on taking Britain out of the European Union without a deal.

It has since risen significantly, however, thanks to a no-deal exit being taken off the table – for now – and Johnson striking a new deal with the EU. By 9pm today it stood at $2.863.

An election campaign brings a new set of uncertainties for sterling traders. “Sterling will be buffeted by the latest polls,” said Chris Towner, director at financial risk adviser JCRA.

“In case Labour is doing well, it is expected to put pressure on sterling and if the Conservatives are doing well in the polls, we expect support for the currency.” This is because a Conservative majority would likely cause Britain to leave the EU with a deal.

Edward Park, deputy chief investment officer at investment firm Brooks Macdonald, agreed. “Should parliament return in December with a mandate for Johnson’s deal, sterling will value the reduced no deal threat and continue the rally seen in recent weeks,” he said.

Other factors will also affect sterling in the meantime. If the European Central Bank (ECB) cut interest rates more deeply than expected, the pound is likely to rise against the euro.

Should economic data in the UK improve, the Bank of England could signal that rates are likely to rise once there is more Brexit uncertainty. This would also push sterling higher.

Nomura foreign exchange strategist Jordan Rochester said: “Polling is likely to be volatile during that six-week election campaign and investor inflows into GBP are likely to suffer from the uncertainty.”

Sterling traders should take “lessons from history,” he said. “When the 2017 election was announced in April it led to a 1.3 per cent rally in GBP on the day. But he said this was the “peak of the optimism” and sterling then fell around six per cent against the euro.

“One thing is for sure,” Towner said, “a hard Brexit is now an unlikely outcome and certainty surrounding Brexit will give sterling a very welcome boost.”

By Harry Robertson

Source: City AM

Pound
Marketing No Comments

Pound lower against dollar after call for UK election

The British pound fell against the U.S. dollar on Thursday following Prime Minister Boris Johnson’s call for a national election.

Johnson said he was asking parliament to approve a national election on Dec. 12 in an effort to break the political deadlock over Brexit and ensure the UK leaves the European Union.

The added uncertainty brought on by an election may hurt the pound GBP= in the near term. It was last down 0.47% at $1.285 and 1.43% lower this week. Having surged to a 5-1/2 month high on Monday, sterling fell on Tuesday after British lawmakers blocked Johnson’s plan to push through a withdrawal agreement and get the UK out of the EU on Oct. 31.

“Is the election positive for GBP? I argue no. The campaign will see polling swings, and investor inflows may slow whilst they wait for the result. It’s why we are long EUR/GBP,” Nomura analysts told clients.

With the Brexit end game more uncertain than traders thought last week, the pound was set up for another rocky period. Against the euro it dropped 0.26% to 86.38 pence per euro EURGBP=.

However, the pound has risen nearly 5% in October as the chances of a no-deal exit have been all but eliminated. It was against that backdrop the pound retraced some of its initial losses after Johnson announced his third attempt to force a snap poll.

The dollar index benefited from the move in sterling, last up 0.16% against a basket of rival currencies at 97.65 .DXY.

The euro was 0.21% lower at $1.111, though it had already sunk against the dollar prior to Johnson’s announcement. Despite some optimism from Mario Draghi’s final news conference as president of the European Central Bank on Thursday, the euro fell, pulled down by business surveys which point to stagnating economic momentum in the euro zone.

“We came into the morning thinking that there would be a bit more optimism than usual from Draghi as it is his last meeting, and we didn’t think he would want to end his tenure on a downbeat note,” said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group.

“We detected some optimism towards the end of the press conference which is why the euro rallied at around 9 a.m. ET. And then it sold off. There was no news in the pipeline to help it stay up.”

Reporting by Kate Duguid

Source: UK Reuters