Sterling weakens as May faces resistance over Brexit extension

British government bond yields also fall

Britain’s prime minister Theresa May leaves from the rear of 10 Downing Street in London on Wednesday. Photograph: Tolga Akmen/AFP/Getty Images

Britain’s prime minister Theresa May leaves from the rear of 10 Downing Street in London on Wednesday. Photograph: Tolga Akmen/AFP/Getty Images

 

Sterling fell on Wednesday after British prime minister Theresa May’s request to delay Brexit until June 30th faced resistance from parts of the European Union.

With no consensus in Britain’s parliament over how to leave the EU, Mrs May was forced to seek an extension from the EU beyond the scheduled departure date of March 29th. The delay requested is shorter than some in the market had been expecting and the prime minister said a no-deal Brexit was still possible, keeping sterling traders on edge.

France then threatened to reject May’s request unless she can guarantee to get her twice-rejected departure plans through parliament.

Markets have largely priced out the chances of a no-deal Brexit but uncertainty about how and when Britain will leave the EU have capped any rally in the pound.

The pound dropped to as low as $1.3147 as investors worried about the EU opposing May’s extension request. It fell nearly 1 per cent on the day before recovering to around $1.3170.

It had been trading around $1.3220 before Mrs May addressed parliament, having rallied to a nine-month high of nearly $1.34 last week.

Against the euro, sterling fell 1 per cent to 86.39 pence , the lowest since March 12th.

“Until some clarity emerges, we do not advocate taking directional views on sterling and advise hedging downside risks, but we note that sterling has tended to react positively to events that point to a substantial delay,” UBS strategists said.

British government bond yields also fell, with the 30-year gilt yield hitting its lowest since September 2017 after May spoke to parliament. – Reuters