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Sterling pressured by UK political upheaval

Sterling pressured by UK political upheaval

LONDON: The British pound remained under pressure Tuesday, one day after Brexit divisions sparked the shock resignations of two ministers including foreign secretary Boris Johnson.

In late morning deals, the pound dipped to $1.3240 but managed to rise slightly against the euro.

The pound was buffeted as traders also digested mixed UK economic data, which showed solid economic growth overall but poor manufacturing output.

Both Johnson and Brexit minister David Davis had quit Monday in a heavy blow to Prime Minister Theresa May’s authority — and her plan for leaving the European Union.

The news has sparked speculation of a potential leadership challenge, and the threat of another general election.

“Theresa May defiantly stood her ground on Monday,” noted Jasper Lawler, analyst at traders London Capital Group.

“With threats of a vote of no confidence unfounded, she lives to fight another day as prime minister… (and) the pound managed to pick itself up.”

In the run-up to the nation’s Brexit referendum in June 2016, Johnson was a prominent Leave supporter — but Theresa May had backed the unsuccessful Remain campaign.

In a separate UK development Tuesday, the country’s Office for National Statistics published for the first time rolling three-month British economic data, which showed growth of 0.2 percent in the quarter to the end of May.

Gross domestic product growth expanded 0.3 percent taking into account only May, when activity was bolstered by sunny weather — and Prince Harry’s royal wedding to Meghan Markle.

“Given the latest political developments surrounding Brexit, this economic data is really of secondary importance in driving the markets and traders are now keenly watching… (for) any signs of a leadership challenge to May,” noted XTB analyst David Cheetham.

“Should one occur, and be successful, then there is the potential for further declines in sterling.”

– Stocks climb –

World stock markets mostly rose on Tuesday, with Europe following most of Asia higher following another strong lead from New York.

Frankfurt fizzed higher despite a gloomy ZEW survey showing that German investor confidence had plunged sharply in July.

Shares in UK multinationals profited from sterling’s weakness.

Sentiment was buoyed also as US economic and corporate optimism provided a welcome distraction from global trade war tensions, dealers said.

After weeks of losses across the world, investors moved back in on Friday as the tit-for-tat tariffs between Beijing and Washington had already been factored in and attention shifted to US jobs and corporate results.

The US earnings season for April-June kicks off this week.

Elsewhere, oil prices rose strongly, partly on expectations of US sanctions on key producer Iran and ongoing political and economic turmoil in Venezuela.

– Key figures around 1045 GMT –

Pound/dollar: DOWN at $1.3240 from $1.3260

Euro/pound: DOWN at 88.52 pence from 88.62 pence

Euro/dollar: DOWN at $1.1716 from $1.1751 at 2100 GMT Monday

Dollar/yen: UP at 111.30 yen from 110.85 yen

London – FTSE 100: UP 0.2 percent at 7,705.24 points

Frankfurt – DAX 30: UP 0.4 percent at 12,593.85

Paris – CAC 40: UP 0.5 percent at 5,426.77

EURO STOXX 50: UP 0.3 percent at 3,471.43

Tokyo – Nikkei 225: UP 0.7 percent at 22,196.89 (close)

Hong Kong – Hang Seng: FLAT at 28,682.25 (close)

Shanghai – Composite: UP 0.4 percent at 2,827.63 (close)

New York – Dow: UP 1.3 percent at 24,776.59 (close)

Oil – Brent Crude: UP $1.07 at $79.14 per barrel

Oil – West Texas Intermediate: UP 47 cents at $74.32

Copyright AFP (Agence France-Press), 2018

Source: Brecorder

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