Sterling extends drop, stocks rise on reports no Brexit deal this week

Lloyd Doyle
December 8, 2017

According to media reports the Eurosceptic faction of government increasingly fear that the PM will deliver a "soft" Brexit, complaining that they were not consulted on her promise of some "regulatory alignment" over the Irish border.

However, the DUP Party, which is now allied with UK Prime Minister Theresa May's Conservative Party, objected to the idea of Northern Ireland being treated differently to the rest of Britain. Markit's United Kingdom services PMI from November only came in at 53.8, falling short of the forecast 55.0. As services make up a notable chunk of Britain's growth, this weighed on Britain's economic outlook.

Sterling touched a one-week low in volatile trading on Wednesday amid growing concerns that a Brexit deal may be unlikely before next week's key European Union summit.

Sterling has had an up and down week so far, swinging wildly between losses and gains as investors try to make sense of the latest developments in the United Kingdom and EU's Brexit negotiations.

Market expectations on sterling have shifted considerably in recent weeks towards betting on a breakthrough in Brexit negotiations with the British currency rising to more than a two-month high last Friday.

The dollar steadied on Tuesday after posting its biggest daily rise in a week in the previous session as caution set in before the USA tax bill becomes reality, with sterling leading early losers.


As the U.S. tax bill has passed major obstacles, investors are increasingly hopeful that the tax changes will be passed and will offer a boost to USA corporations.

October's USA trade deficit came in even worse-than-expected, at $-48.7b.

Tuesday's American session saw the publication of U.S. trade balance data from October, as well as non-manufacturing PMIs for November. Markit's services PMI came in at 54.5, below the forecast 55.4, while ISM's non-manufacturing PMI slipped from 60.1 to 57.4 rather than coming in at the forecast 59.0.

The Trump-Russia story is likely to continue to hit headlines in the coming year, and if any connections are made to US President Donald Trump it could cause mass market uncertainty.

"With regards to the dollar, everything is already there in the price and we need to see further movement on the tax bill or strong data to push it higher", said Manuel Oliveri, an FX strategist at Credit Agricole in London. This helped the pound to climb back through the 1.34 region once again and this happened despite the strength of the dollar that was seen all across the markets yesterday.

Meanwhile the Australian Dollar could struggle to stabilise in overnight trade on Wednesday as economists forecast that the latest domestic trade figures will show that the country's trade surplus narrowed from AU$1.7bn to AU$1.3bn in October.

Other reports by Iphone Fresh

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