BERLIN (Reuters) - It turns out that economists are not as pessimistic as UK trade minister Liam Fox about the risks of a no-deal Brexit.
That is still substantial, and sterling is paying the price.
The pound skidded to its lowest levels against the dollar and euro in almost a year on Wednesday as investors stepped up hedging against a disruptive no-deal scenario.
The rouble is also under pressure after the United States announced that it would impose new sanctions on Moscow over the March poisoning of former spy Sergei Skripal and his daughter in Salisbury, England.
The latest round is tied to the U.S. assessment that Russia made use of a nerve agent in the attack.
More draconian sanctions will hit in 90 days unless Moscow can provide reliable assurances that it will no longer use such weapons and allow on-site inspections by international observers.
Meanwhile, questions are being asked about a letter from U.S. President Donald Trump to Russian President Vladimir Putin that was hand-delivered by U.S. Senator Rand Paul on a visit to Moscow. The White House described it as a mere letter of introduction for Paul.
But the senator has suggested it was a far broader offer of U.S.-Russian cooperation.
Three weeks after Trump’s widely panned meeting with Putin in Helsinki, the direction of the relationship remains shrouded in confusion.
It won’t help that another U.S. senator has now accused Russian operatives of penetrating Florida’s election systems ahead of the November mid-term elections.
Currency markets are on the move.
Turkey’s lira, Britain’s pound and now Russia’s rouble are all in play this week with outsize losses in each due to domestic policy concerns and international trade and diplomatic relations. Russia’s rouble plummeted more than 3 percent to its lowest level since 2016 on Wednesday as the United States announced new sanctions on a huge range of Russian exports and imports and Aeroflot flights because of Moscow’s alleged involvement in the nerve agent attack in Britain earlier this year.
Russian markets had already been falling amid heightened concern about another, separate round of sanctions, including those on owners of Russian sovereign debt, under consideration by the U.S. Senate over alleged U.S. election meddling by Moscow.
The rouble continued to weaken past 66 per dollar first thing Thursday and dropped to its lowest since May against the euro.
Russian sovereign dollar bonds lost over two cents on Wednesday, with Russian equity ETFs dropping more than 4 percent in U.S. hours.
Turkey’s lira resumed its precipitous decline, sliding to a record low of 5.43 per dollar.
A Turkish government delegation that went to Washington to try to resolve the latest diplomatic and trade dispute with the U.S. government has so far only met relatively junior administration officials and there was no signs of any breakthroughs.
Sterling set new 2018 lows against the dollar and the euro overnight before steadying as this week’s selling and hedging amid fears of a no-deal Brexit snowballed on Wednesday, with options market volatility covering the remainder of the year climbing higher.
The currency moves are all the more remarkable as the dollar has been relatively stable against other major currencies such as the euro and yen.
Wall Street stocks also ended little changed overnight, with the S&P500 just shy of records and the VIX volatility gauge at its lowest since January.
Shanghai stocks rallied almost 2 percent overnight after Beijing announced a series of fiscal stimulus measures to cushion the economy from the effects of the escalating trade war with Washington and July Chinese inflation numbers came in below forecast.
Other Asia bourses were steady.
European stocks were expected to open slightly higher.
Brent crude firmed slightly after Wednesday’s steep decline when China earmarked U.S. energy imports as part of its retaliatory tariffs to the latest round of U.S. trade barriers against Beijing.
A look at the day ahead from Europe Special Correspondent Noah Barkin and EMEA markets editor Mike Dolan. The views expressed are their own.
Reporting by Noah Barkin; editing by Larry King