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Sterling gains slightly due to no Article 50

  • Posted by Shyam Gokani in Uncategorised
  • June 29, 2016
  • No Comments

Sterling rose for a second day this morning, helped by rising stock markets, although lingering concerns over UK growth and investment after Britain’s vote last week to leave the European Union were likely to limit gains.

Investors were taking some reassurance from the fact that British politicians were not rushing to trigger the Article 50 mechanism for a state to leave the EU, despite European leaders telling Britain to act quickly.

Two British opposition lawmakers were starting to push for a second Brexit referendum, and traders said that given the political uncertainty and leadership battles within the ruling Conservative Party and opposition Labour, investors were likely to stay cautious.

There is still considerable uncertainty as to what will happen in the UK following the Brexit referendum. The next few days will at least provide some clarity.

Sterling was also drawing support from shifting expectations on U.S. interest rates. Markets are now pricing in a 5 percent chance the Federal Reserve will cut rates in July and an 11 percent chance of a cut in September.

For Britain, analysts said money markets were almost fully priced for a rate cut by the Bank of England by the end of the year and around a 50 percent chance of one by August, which should keep sterling weak.

The world’s biggest banks are forecasting a fall in sterling to $1.20. Forecasts for sterling by the end of the year have been cut by up to 30 cents since Friday.

 

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