- Pound Rises as May Eases Brexit Angst
The pound rallied after Prime Minister Theresa May accepted that Parliament should be allowed to vote on her Brexit plan. European stocks fluctuated as investors assessed earnings for signs of growth against the backdrop of speculation on a tightening of U.S. monetary policy.
Sterling climbed the most since August as May’s move reassured investors that the government would take a more measured approached to negotiations with the European Union. Stocks in the region were little changed while the MSCI Asia Pacific Index retreated to a three-week low. Thailand’s stock market and currency extended this week’s losses after the royal palace said Sunday that King Bhumibol Adulyadej’s condition was unstable. Oil climbed as OPEC received further commitments from Russia that the world’s largest energy exporter is willing to participate in a coordinated effort to curb production.
May’s decision to give lawmakers a say over Brexit halted a four-day rout in the pound that was sparked by concern she was taking a hard-line approach to the negotiations. It’s not just sterling that’s been upended in foreign-exchange markets this week — the baht’s slump sent it to the weakest level since January, while the rand plunged the most in more than three months on Tuesday after South Africa’s finance minister was summoned to appear in court to face charges. That’s helping support the dollar, which has also been buoyed by speculation that the Federal Reserve is moving closer to raising interest rates.
“The vote is a major concession that does reduce the room to maneuver for Theresa May’s government in the negotiation,” said Hans Redeker, Morgan Stanley’s chief global currency strategist in London. “That is currently read as positive for sterling.”
The pound climbed 1.1 percent to $1.2250 at 10:56 a.m. in London, rebounding from near a three-decade low.
Parliament will debate on Wednesday a motion from the opposition Labour Party calling for a “full and transparent debate on the government’s plan for leaving the EU” and for lawmakers to be able to “properly scrutinize that plan” before May begins formal talks. In response, May tabled an amendment that effectively accepted the motion, adding that there shouldn’t be an attempt to block Brexit or “undermine the negotiating position of the government.”
The Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed after rising for the past two days and closing at the strongest level since July 25 on Tuesday. Investors will scrutinize minutes from the Fed’s latest decision due Wednesday, with odds of a U.S. rate increase by year-end climbing to 68 percent amid speculation the recent surge in oil prices will fuel inflation, based on futures data compiled by Bloomberg.
China’s central bank weakened the yuan’s reference rate for a sixth day, the longest run of cuts in nine months, amid speculation policy makers will allow further declines as the dollar rises. The currency was little changed at a six-year low.
South Africa’s rand swung between gains and losses after tumbling 3.9 percent on Tuesday, the most in more than three months, after Finance Minister Pravin Gordhan was summoned to appear in court.