Sterling rises from 11-month low; investors focus on Brexit and BoE

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LONDON (Businesshala) – The pound rose on Monday but lagged behind other risk-averse currencies, as investors held talks over a post-Brexit trading arrangement for Northern Ireland as well as the possibility of the Bank of England raising rates next month. be focused.

FILE PHOTO: British five-pound notes are seen in this image taken on November 14, 2017. Businesshala/Benoit Tessier/Illustration/File photo

Relations between the UK and the EU have deteriorated in recent weeks, with Britain unhappy with the Brexit deal in 2020, threatening to trigger an emergency clause known as Article 16 of the Northern Ireland Protocol, potentially leading to There could be a trade war.

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But the European Commission’s Maros Sefkovic said he was “absolutely confident” that Britain and the EU can break their impasse.

At 1605 GMT, the pound was up 0.1% against the dollar at $1.34265, up from an 11-month low of $1.3354 on Friday last week.

Against the euro, it was up about 0.3% at 85.04 pence per euro.

Analysts were divided on how much Brexit tensions are having an impact on the pound.

“The FX market has still been quite reluctant to price in any Brexit-related risk premium over GBP,” ING Strategists wrote in a note to clients.

“Our moderate bullish bias on GBP for the rest of the year is tied to the view that markets will continue to shy away from embedding more political risk in GBP.”

The weekly CFTC positioning data suggests speculators are bullish on the pound versus the dollar as a whole.

But a one-month risk reversal – a gauge of market expectations for the pound’s direction – hit the lowest level since December 2020 on Thursday last week. The gauge is in negative territory which indicates that the market expects the pound to fall.

Marshall Gittler, Head of Investment Research at BDSwiss Group, said: “The steadily declining level of reversal suggests that the market is becoming increasingly concerned about the pound, which I suspect may have had its effect from the UK bricksmanship around Article 16.” Something has to do with it.” In the client note.

Neil Jones, head of FX sales at Mizuho, ​​said Brexit tensions were “a continuing headwind for Sterling”, but unless there was an obvious event like triggering Article 16, the move was “less than a gentle slow .. . Opposing the sharp move.”

In the coming week, markets will be focused on the UK jobs report on Tuesday and CPI data on Wednesday.

The Bank of England will be the first major central bank to raise interest rates, but whether that initial increase comes next month or early next year, economists surveyed by Businesshala is divided.

BoE Governor Andrew Bailey said he was very uneasy about the inflation outlook and his vote earlier this month to keep interest rates on hold, which rattled financial markets, was a very close call.

Reporting by Elizabeth Hawkroft; Editing by Chizu Nomiyama and Bernadette Baumo

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