Pound Jumps Amid Speculation – 1 Dec, 2016
The pound rose as investors seized on the prospect of the U.K. retaining preferential access to the European Union’s single market after Brexit.
Sterling reached its strongest level in two months as Brexit Secretary David Davis said the U.K. would consider making contributions to the EU in order to secure the best possible access to the single market. Dutch Finance Minister Jeroen Dijsselbloem told the Times of Malta that Britain might be able to participate in the internal market, albeit at a cost. The pound pared its gain later in the European day.
The pound’s advance is evidence of how sensitive the currency is to officials’ comments about the nature of Britain’s relationship with the EU once it quits the bloc. Sterling is the worst-performing major currency since the U.K.’s June 23 referendum, dragged down by concern the nation is headed for a so-called hard exit where unfettered single-market membership is sacrificed for immigration controls.
“If the U.K. does stay in the single market, it’s very likely that sterling will go up,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. The comments “very much shift the pendulum away from hard to soft Brexit. Embedded within a soft Brexit is access to the single market one way or another.”
The pound climbed 0.5 percent to $1.2572 as of 4:40 p.m. London time, having reached the strongest level since Oct. 6. It’s down 16 percent since the EU vote. It appreciated 0.2 percent to 84.52 pence per euro.
The FTSE 100 Index of shares, which is dominated by companies that sell goods abroad and benefit from a weaker currency, fell 0.5 percent. U.K. government bonds declined with their euro-zone peers, pushing the 10-year gilt yield six basis points higher to 1.48 percent.
Source: Bloomberg