Sterling plunges in swift turnaround

UK attorney general says revised deal doesn’t remove legal risks on backstop

The pound plunged in a swift turnaround from an earlier rally after the UK attorney general said the revised Brexit deal doesn't remove legal risks on the Irish backstop.

Sterling fell more than 1 per cent to 86.45 pence per euro as Geoffrey Cox's comments damped the prospect of Prime Minister Theresa May garnering the support of enough lawmakers to back her deal in a vote Tuesday. Gilts erased an earlier decline to gain ground.

“Sterling has been knocked back on the news that Cox is not throwing all of his weight behind last night’s amendment to the Withdrawal Plan,” said Jane Foley, currency strategist at Rabobank International. “The risk is clearly that PM May could still be unable to secure enough support in the Commons to pass her deal.”

The pound weakened 1 per cent against the dollar to $1.3019 by mid-morning and fell 1.1 per cent to 86.45 pence per euro. Benchmark yields on UK government bonds fell one basis points to 1.17 per cent, having earlier touched a high of 1.25 per cent. Britain’s domestically focused FTSE 250 stocks index rose 0.6 per cent.

The new agreement seems to fall “short” of the plan Parliament wanted to see, said Steve Baker, a pro-Brexit member of Mrs May’s Conservative Party on Monday. A panel of euro-skeptic politicians will examine May’s latest blueprint in detail, he said. – Bloomberg