Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

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

Published 15/11/2021, 09:34
Updated 15/11/2021, 16:32
© Reuters. FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/Illustration/File Photo

© Reuters. FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/Illustration/File Photo

By Elizabeth Howcroft

LONDON (Reuters) -The pound rose on Monday but lagged behind other risk-linked currencies, as investors focused on talks over post-Brexit trade arrangements for Northern Ireland as well as the likelihood of the Bank of England raising rates next month.

Relations between Britain and the European Union have deteriorated in recent weeks after Britain, unhappy with the Brexit deal it signed up to in 2020, threatened to trigger an emergency clause known as Article 16 of the Northern Ireland Protocol, potentially leading to a trade war.

But the European Commission's Maros Sefcovic said that he is "absolutely convinced" that Britain and the European Union can break their impasse.

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

Versus the euro, it was up around 0.3% at 85.04 pence per euro

Analysts were split over how much impact the Brexit tensions were having on the pound.

"The FX market has still been quite reluctant to price in any Brexit-related risk premium on GBP," wrote ING strategists in a note to clients.

"Our moderately bullish bias on GBP for the remainder of the year is tied to the view that markets will continue to steer away from embedding much political risk into GBP."

Weekly CFTC positioning data showed that speculators are overall bullish on the pound versus the dollar.

But one-month risk reversals - a gauge of the market's expectations of the pound's direction - hit their lowest since December 2020 on Thursday last week. The gauge is in negative territory which indicates the market expects the pound to fall.

"The ever-falling level of the risk reversals suggests that the market is getting increasingly worried about the pound, which I suspect has something to do with the UK brinksmanship around Article 16," Marshall Gittler, head of investment research at BDSwiss Group, said in a client note.

Neil Jones, head of FX sales at Mizuho, said that the Brexit tensions were "a continuing headwind for sterling" but that until there is clear event such as triggering Article 16, the move will be a "gentle slow grind lower... as opposed to a sharp move."

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

© Reuters. FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/Illustration/File Photo

The Bank of England will be the first major central bank to raise interest rates but whether that initial increase comes as soon as next month or early next year has divided economists polled by Reuters.

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

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.