Pound continues to fall as Brexit debacle deepens

Analysts warn the currency will 'start feeling the pinch of snap elections'

Sterling fell to 1.2348 against the dollar on Thursday morning. Reuters
Sterling fell to 1.2348 against the dollar on Thursday morning. Reuters

The pound fell against the dollar and euro early on Thursday, after British Prime Minister Boris Johnson dared Parliament to call for a no-confidence vote in him and again dismissed the Supreme Court’s ruling that his decision to suspend parliament was unlawful.

Sterling fell to 1.2348 against the dollar while it also fell to 1.12723 against the euro.

Broker London Capital Group said in a note on Thursday that while investors expect nothing to change from the previous weeks in the UK’s political debacle regardless of a suspended or unsuspended Parliament, the opposite will happen.

"The pound will likely start feeling the pinch of snap election talks that could bring more uncertainty to the mix, though the Labour Party will likely reject an early vote before the October 31st deadline is off the table," Ipek Ozkardeskaya, a senior market analyst, wrote.

On Wednesday, Parliament rejected Mr Johnson’s offer to hold a no-confidence vote in him, as MPs first wanted assurance the Brexit deadline would be extended.

Although the British leader continued to stand by his bid to leave the EU by the October 31 deadline, many MPs accused him of being deceptive in heated exchanges in the House of Commons. Mr Johnson said he would not ask for a Brexit extension if no deal is agreed during the EU council meeting on October 17 and 18.

“From a technical standpoint, a move below the 1.2348-support should send the pound to the bearish consolidation zone and encourage a further decline to 1.2273 ... and 1.2198,” Ms Ozkardeskaya added.

However, Ms Ozkardeshakya said a cheaper pound is expected to whet foreign investors’ appetite in British blue chips.

The FTSE 100 remained relatively resilient on Thursday morning, despite a sell-off that hit other European indices on Wednesday, advancing after four straight sessions in the red. A conciliatory statement from China did enough to counteract a trio of profit warnings from blue-chip components including International Airlines Group, publishing and education company Pearson.

Sentiment was also supported after US President Donald Trump said overnight a trade deal with China could be struck soon.

“Following yesterday’s positive session in the US, there seems to be a bit more optimism, but it’s pretty fragile,” Markets.com analyst Neil Wilson said. Spreadex analyst Connor Campbell said Trump’s trade remarks were outweighing any other “destabilising factors” surrounding his presidency.

Published: September 26, 2019 03:53 PM

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