Sterling inches off lows after biggest weekly drop this year - REUTERS

MAY 21, 2019

BY  Abhinav Ramnarayan

LONDON (Reuters) - Sterling inched away from its weakest levels since January on Monday as Britain’s prime minister made a last-ditch bid to get a Brexit deal through parliament before she leaves office, though scepticism from the opposition Labour Party capped gains.

After failing three times to get parliament’s approval for her EU divorce deal, Theresa May said she would present a “new, bold offer” to lawmakers with “an improved package of measures” in a final attempt to secure a Brexit deal.

Though there is widespread scepticism that any such deal will get ratified by lawmakers, sterling rose 0.1% higher against the dollar to $1.2732. That followed a drop of 2.2% last week, its worst week since October 2017.

The British currency was marginally down against the euro on Monday at 87.775 pence.

“News reports suggest it (May’s package) is a retread of old ideas and as long as that is the case, the market is going to be very sceptical,” said Rabobank FX strategist Jane Foley.

The leader of Britain’s opposition Labour Party said he would not support May’s new move to push through her Brexit bill if it was fundamentally the same as the bill that had been defeated three times before.

This inability of the British parliament to compromise on the terms for exiting the European Union has led the market to take a much more binary view on the outcome, between a so-called hard or no-deal Brexit and a second EU referendum.

Adding to this feeling is a poll that showed Boris Johnson, a prominent leader of the Brexit campaign, as top choice among members of Britain’s ruling Conservative Party to replace May as prime minister.

“The perceived risk of a no-deal Brexit has probably risen in the past few weeks, there’s a kind of acceptance that there will be a new prime minister who will probably be a eurosceptic,” said James Smith, an economist at ING Bank.

He added, however, that he believed the risk of a no-deal Brexit is still low at around 20%, since any new leader would face the same resistance as May has given that a parliamentary majority still favours leaving the EU with a deal.

Money market pricing suggests that investors are now only baking in an 11 percent chance of a Bank of England rate rise in December, down from about a 30 percent chance two weeks ago.

Reporting by Abhinav Ramnarayan; Editing by Mark Heinrich


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