Pound goes on rollercoaster ride after Brexit draft deal

The British pound had a tumultuous session on Thursday (17 October) as a draft Brexit deal between London and Brussels sparked both hope and skepticism in a volatile forex market.

Sterling soared to within a whisker of $1.30, striking five-month peaks, when news flashed across traders’ screens that the European Union had reached a draft Brexit withdrawal deal with London.

The pound held on to most of those gains for a while, absorbing a bout of profit-taking, but then the currency plunged into negative territory when it dawned on investors that there was no guarantee of UK parliamentary backing for the agreement.

“After the initial relief that the UK government and EU have done a deal, markets are worried that it still does not have enough support to get through parliament on Saturday,” independent economist Julian Jessop told AFP.

By the end of the European business day, the pound was pretty much back to where it started. It strengthened modestly after that.

Wall Street also finished higher, with analysts citing the Brexit deal despite opposition from key lawmakers that threaten its prospects.

‘Still chance of no deal’

It is unclear how many of Prime Minister Boris Johnson’s Conservative MPs will back the deal when he brings it to lawmakers for approval Saturday, and whether the opposition will try to vote it down or attempt to force a fresh referendum.

“There is still a chance for a no-deal Brexit – although the more likely scenario would be for the Prime Minister to follow the law and request the EU for a Brexit deadline extension, which then opens up more uncertainty,” said Fawad Razaqzada at Forex.com.

Northern Ireland’s hardline loyalist DUP said Thursday it was “unable to support” the draft deal.

A pre-emptive DUP announcement to the same effect issued ahead of the draft deal had already weighed on sterling, before news from Brussels gave the currency wings.

“The Brexit agreement dream has been shattered by the DUP, after reports have surfaced claiming they are still unwilling to back Johnson and his EU divorce agreement,” said Sebastien Clements, a currency analyst at OFX.

While the pound stabilised late in the session, “all it takes is a leak from Westminster to restart the market chaos”, he said.

Even Wall Street likes it

The London stock market, which usually moves in the opposite direction from sterling, enjoyed a small rise Thursday, becoming the day’s star performer in otherwise lacklustre European equity trading.

Wall Street also pushed higher, aided by strong earnings from Netflix and some other companies, and by optimism over Brexit.

Alan Skrainka of Cornerstone Wealth Management acknowledged there were doubts about the deal’s prospects but said “this is really the first tangible sign of progress we’ve had in some time.”

Source: Euractiv.com

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