February 18, 2019 / 8:57 AM / a month ago

Pound rises as Brexit divisions deepen

LONDON (Reuters) - Sterling gained on Monday after registering three consecutive weeks of losses as investors waited for the outcome of Brexit talks between Britain and the European Union.

Pound coins are seen in the photo illustration taken in Manchester, Britain September 6, 2017. REUTERS/Phil Noble/Illustration

A split in Britain’s opposition Labour Party - with seven politicians quitting on Monday in protest against Jeremy Corbyn’s leadership - will likely weigh on the pound as the move increases political uncertainty, according to MizuhoInternational.

Meanwhile, Prime Minister Theresa May is leading a last-ditch diplomatic drive to persuade EU leaders to save her Brexit agreement as she faces a rebellion from Cabinet ministers who want to stop the UK leaving without a deal.

Business leaders, increasingly fearful about the chaos that would ensue from a no-deal Brexit, are putting into place contingency plans across the board.

The pound climbed 0.3 percent higher at $1.2929. Against the euro it rose 0.2 percent to 87.30 pence.

Sterling rallied more than half a percent on Friday, helped by reports of some hedge fund buying, a conciliatory tone on Brexit from the Irish foreign minister and strong British retail sales published earlier in the day.

Broader currency markets were quiet with U.S. markets shut for a holiday.

Some analysts said the split in Labour could help the pound.

“A number of anti-Brexit Labour MPs resigning could push Jeremy Corbyn towards a different solution from what is now on the table and could be helpful to the pound as the market views a no-deal Brexit as the worst potential outcome for the UK economy,” said City Index senior market analyst Fiona Cincotta.

May has told EU leaders she could pass her deal with concessions primarily around the Irish backstop issue but a symbolic defeat in Parliament last week weakened her negotiating hand.

“Prime Minister Theresa May is setting off to Europe to ‘re-negotiate’,” Commerzbank strategists wrote in a daily note.

“What a sad Sisyphean task! I cannot imagine that anyone assumes this might result in anything productive.”

Derivative markets were cautious with two-month pound risk reversals, a gauge of calls to puts on the British currency, hovering near three-month lows. It was a sign of investor caution about the pound’s outlook in the near term.

Reporting by Tom Finn and Saikat Chatterjee; Editing by Toby Chopra

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