Sterling at three-week low as government Brexit divisions on show (UPDATE 1)


Devdiscourse News Desk | Updated: 02-10-2018 19:03 IST | Created: 02-10-2018 15:35 IST
Sterling at three-week low as government Brexit divisions on show (UPDATE 1)
  • Country:
  • United Kingdom

The pound slid to a three-week low on Tuesday on fears about a conflict over UK Prime Minister Theresa May's Brexit plan escalating, with the division on show at a ruling Conservative Party conference.

Sterling's fortunes are being driven by headlines about May's proposal for Britain exiting the European Union in six months and whether she can persuade the block and senior members of her own party to accept it.

In particular, traders are focused on a new offer Britain is preparing to make to the EU on the Irish border, aimed at breaking the deadlock in Brexit talks before a decisive EU summit in late October.

The pound spiked briefly on Monday on a report that Britain might back down on customs checks between mainland Britain and Northern Ireland, a major obstacle to Brexit.

But, by 1000 GMT, sterling had relinquished all of those gains and was trading down 0.6 per cent versus a rallying dollar at $1.2952, its lowest since Sept. 10. It was flat versus a weaker euro at 88.79 pence.

The leader of the Northern Irish party which props up May's government, Arlene Foster, said Northern Ireland must leave on the same terms as the rest of Britain.

"Foster saying we cannot be separated from the United Kingdom .. is a reiteration of their position since the referendum and the single most important feature in the whole Brexit negotiation," Mizuho's head of FX hedge fund sales Neil Jones said.

At her party's annual conference this week, May is defending her so-called Chequers plan for leaving the EU. Critics, including former foreign secretary Boris Johnson who is due to talk at the Tory conference on Tuesday, are openly defying her.

"The conference is a minefield for sterling. We're trading from headline to headline," WorldFirst head of FX strategy Jeremy Cook said.

"The bias for the pound is to the downside," he said.

Analysts at MUFG said Monday's relief rally suggests that "the pound is likely to trade with some volatility during the remainder of this week".

A potential downside risk for sterling is the prospect of May's own party challenging her leadership.

May said on Tuesday she planned to remain in the job "for the long-term" as she called on her party to back her plan for Brexit.

(With inputs from agencies.)

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