The British pound recovered strongly yesterday as traders were willing to bet that the UK’s EU exit will be pushed beyond its March 29 deadline. However, Both the pound and the FTSE held up even as Britain’s finance minister Philip Hammond slashed the forecast for economic growth this year due to Brexit uncertainty.
Sterling’s rebound came hours ahead of a vote in Britain’s parliament which is expected to soundly reject a “no deal” Brexit.
If so, a further vote will determine whether London should ask the EU for more time beyond March 29 to sort out its departure from the bloc.
“The potential delay of Brexit is what is helping to hold up the pound, but by the same token, the uncertainty is limiting its upside potential,” said Fawad Razaqzada at Forex.com.
“If it feels like the UK government is going around in circles, it is because it is,” he added.
Sterling, and also London’s stock market, had taken a brief knock after MPs on Tuesday rejected for a second time a Brexit withdrawal deal negotiated by Prime Minister Theresa May, despite her obtaining last-minute added reassurances from EU officials.
But both recovered as the European trading day wore on, with the pound up more than 1% against the dollar on the day, and its progression against the euro only marginally less vigorous at 0.9%.
“The pound has been the main area of volatility when reflecting Brexit developments, with the FTSE 100 remaining somewhat stable despite the constant shifts,” said Joshua Mahony, senior market analyst at IG trading group.
Sparking the pound’s rally, meanwhile, was “markets either sniffing an opportunity for a second referendum or a deal passing,” said Viraj Patel, a foreign currency and macroeconomics strategist at Arkera, in a tweet.
Both the pound and the FTSE held up even as Britain’s finance minister Philip Hammond slashed the forecast for economic growth this year due to Brexit uncertainty.
The UK economy is forecast to grow by 1.2% this year, down on the government’s prediction of 1.6% in October, Hammond said as he gave a budget update.
Elsewhere yesterday, Asian indices closed lower.
Eurozone stock markets ended the day higher across the board, and Wall Street also showed solid gains in the early New York afternoon, prompting Briefing.com analyst Patrick O’Hare to note that the US stock market was acting like it did not have a care in the world.
London’s FTSE 100 gained 0.1% to 7,159.19 points, Frankfurt’s DAX 30 was up 0.4% to 11,572.41 and Paris’s CAC 40 rose 0.7% to 5,306.38 points close yesterday.
“It could care less that the UK’s Brexit effort is a mess. It could care less that Boeing is dealing with a PR nightmare as multiple countries have grounded the 737 MAX,” he said, adding investors also appeared unfazed by declining earnings estimates and global growth slowing down.
O’Hare said investors appeared to be happy that Fed interest rates probably will not rise any time soon, a supportive factor for stocks.
Oil was also well-bid, with the US benchmark WTI contract reaching a multi-month high driven by falling American stocks and global supply uncertainty.