FX round-up: Pound edges higher, talks between Labour and Government in focus

15 April 2019

(Sharecast News) - Sterling edged up on Monday, following remarks from Foreign Secretary Jeremy Hunt, who said during a visit to Japan that talks with Labour - which are set to continue over the Easter recess - had been "more constructive than people thought".
That saw the pound put on 0.11% versus the Greenback and as of 2038 BST it was trading at 1.30950, while against the euro it was 1.1585, having gained 0.15%.

Trading at the start of the holiday-shortened week was nevertheless lacklustre, with the US dollar spot index dipping by just 0.02% to 96.9510, in a session that was almost completely devoid of economic releases, with dollar/yen exactly flat alongside at 122.00.

In the background, analysts continued to weigh in with their views on the Prime Minister's decision to accept Brussels's offer for a six-month extension to Article 50.

Theresa May had originally asked for only a one-month extension.

<em>Barclays Research</em> was critical, telling clients: "the six-month extension removes both the carrot and the stick, leaving the UK stranded between two worlds.

"We think this also tilts the balance of risks to the downside as markets and businesses now face a prolonged period of high uncertainty, with a need to maintain costly inventories and delaying necessary investment further. Accordingly, we expect Q1 19 inventory-fuelled upside surprises to growth to be reversed from Q2 onwards."

Their peers at <em>Citi</em> on the other hand believed that as the possibility of a 'no deal' Brexit receded into the background, a snap election became in fact more likely.

On a related note, they warned that an election victory for Labour's Jeremy Corbyn might be as damaging for UK lenders' profitability as a 'hard Brexit' (not to mention Labour's intention to nationalise <strong>RBS</strong>, although it remained unclear how it might be financed), above all for those focused on serving the British economy.

The more global banks would probably 'hold firm' as weakness in Sterling acted as an offset, Citi said.