July 25, 2019 / 8:43 AM / a month ago

Sterling stuck near $1.25 as new PM Johnson sticks to Brexit stance

LONDON (Reuters) - Sterling traded below $1.25 on Thursday, little changed, after new Prime Minister Boris Johnson filled his cabinet with Brexiteers and promised he would take Britain out of the European Union on Oct. 31 with or without a transition deal.

FILE PHOTO: A customer counts his Egyptian 50 pound notes at an exchange office in downtown Cairo, Egypt, April 19, 2016. REUTERS/Amr Abdallah Dalsh

Johnson met his Brexiteer-dominated team of senior ministers for the first time on Thursday to plan how to persuade the EU to agree to a new withdrawal deal.

He told parliament that the Irish border backstop would have to be struck out of the divorce agreement if there was to be an orderly exit with a deal.

Johnson’s victory in the Conservative Party leadership contest was largely priced into sterling. It has lost more than 5% of its value since early May and recently touched a 27-month low against the dollar and a six-month low versus the euro. A small recovery since was caused largely by profit-taking from investors who had shorted the currency.

“Sentiment towards the pound doesn’t seem to have improved – on the contrary, three-month risk reversals continue to decline, showing that people are getting increasingly negative on the currency,” said Marshall Gittler, a currencies analyst at ACLS Global.

“So I believe this is just a temporary respite and I remain long-term bearish on GBP.”

Attention now turns to whether Johnson will follow through on his rhetoric about trying to extract more concessions from the EU, and taking Britain out of the EU in October without a deal if he cannot achieve that.

The EU has so far repeatedly said it will not rewrite the withdrawal agreement, but it has said it could change a so- called political declaration on future ties.

Sterling edged up 0.2% to $1.2502.

Against a euro that rebounded across the board after the European Central Bank was not as dovish in its monetary policy stance as some had expected, the pound slipped 0.3% to 89.485 pence.

Reporting by Tommy Wilkes; Editing by Larry King and Frances Kerry

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