Pound holds its ground after May's Brexit battering

Momentum is shifting away from the harder Brexit route and towards a number of options ranging from postponement and second referendum
Pound holds its ground after May's Brexit battering
Sterling tanked to a near two-year low soon after the government's proposal on leaving the EU was soundly beaten on Tuesday evening, but it soon bounced back as traders bet the vote reinforced their view that there would not be a "no-deal" exit.
By AFP
Wed 16 Jan 2019 07:41 AM

The pound edged down Wednesday after the record defeat of British Prime Minister Theresa May's Brexit plan but mostly held its ground as investors consider the next likely developments in the long-running saga.

Sterling tanked to a near two-year low soon after the government's proposal on leaving the EU was soundly beaten on Tuesday evening, but it soon bounced back as traders bet the vote reinforced their view that there would not be a "no-deal" exit.

And while it was slightly lower in Asia the pound managed to avoid the sort of pummelling many had predicted and analysts say the positive news is that the options for the future are narrowing, which is largely positive.

With May expected to win a vote of no confidence called by the opposition Labour Party on Wednesday, talk will move to what happens next.

Analysts say May could ask to delay Britain's March 29 exit as she looks for a more palatable agreement from her EU peers, while there is growing speculation of a general election and even another referendum.

"Momentum is shifting away from the harder Brexit route and towards a number of options ranging from postponement and second referendum. That is pound supportive," said Gavin Friend at National Australia Bank.

But he added: "I don't see the pound rallying much until markets are sure the (ruling) Conservatives have seen off the confidence motion."

Meanwhile London may still leave the bloc without a back-up.

"We cannot ignore the fact that it takes very little effort for no-deal, whilst it takes a vast amount of effort to avoid it," warned Neil Wilson, chief market analyst at Markets.com.

Asian equity markets were mixed after Tuesday's rally that was fuelled by Chinese plans to cut taxes in a bid to support the stuttering economy.

Traders are also growing increasingly worried about the lack of movement in the US over the government shutdown, which is now in its fourth week, with both sides digging their heels in.

By the break Tokyo was off 0.7 percent, while Hong Kong eased 0.2 percent after a two percent rally Tuesday. Shanghai also slipped 0.2 percent.

But Sydney rose 0.1 percent, while Singapore and Seoul added 0.2 percent and Wellington put on 0.5 percent.

Investors are now gearing up for the start of the corporate earnings season and some are concerned that the effects of recent soft economic data globally -- as well as the China-US trade war -- will begin to show up in accounts.

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