Pound Extends Rally From 1985 Low as Post-Brexit Markets Calmby
Sterling gains for a second day, exceeding Tuesday’s advance
U.K.’s main stock index erases its post-referendum losses
The pound extended its advance from a three-decade low as traders took advantage of the global market rout to go on a buying spree.
Stocks, oil and higher-yielding euro-zone bonds all recovered some of the losses seen in the wake of Britain’s vote to leave the European Union. Sterling is still down 8.6 percent since the nation went to the polls June 23, though the U.K.’s FTSE 100 stocks index wiped out its post-Brexit slide.
The gains came even as investors -- and European leaders who met for a second day in Brussels -- waited to see how the U.K. will execute its departure from the world’s largest single market.
“Markets have calmed down somewhat,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “We may see some short-term continuation of the recovery in the pound if there’s an increased chance of a new prime minister who can secure the access of the U.K. to the single market. But uncertainty is still high and market participants are jittery.”
Brexit is currently in deadlock because the U.K. itself must trigger the exit process following its June 23 referendum. Yet Prime Minister David Cameron announced his resignation on the morning the “Leave” result came in, and has repeatedly said that it’s for his successor -- who’s not likely to be selected until September -- to begin the proceedings. That’s frustrating his EU colleagues, many of whom want the process to start as soon as possible.
The pound gained 0.7 percent to $1.3435 as of 3:53 p.m. in New York, a day after gaining 0.9 percent. Britain’s currency tumbled 8.1 percent on Friday, the biggest decline on record, and on Monday sank further to $1.3121, the lowest since 1985.
Sterling strengthened 0.4 percent to 82.64 pence per euro, after touching a more than two-year low of 83.80 pence on June 27.
“There’s still more downside room for the pound,” said Shahab Jalinoos, global head of foreign-exchange strategy at Credit Suisse Group AG in New York, said on Bloomberg Television. “When you look at the volatility of the currency, when you look at the extreme political risk, and you add on that the fact that you have a large budget deficit, you have a huge current account deficit -- this is typical of what we’ve seen in the past in emerging-market crises.”
Doubts are even emerging that Brexit will happen. The referendum isn’t legally binding on the government. A public petition calling for a rerun of the referendum attracted the support of millions. And pro-Europeans have suggested that members of the “Leave” campaign won with false promises, making the result illegitimate.
Cameron has said the government must honor the result of the vote, while German Chancellor Angela Merkel said in Brussels Tuesday that she sees “no way back” from the Brexit vote.
Still, the suggestion that an exit could be avoided has gained momentum, and Nordea Bank AB said Tuesday it saw a 30 percent chance that the U.K. won’t trigger the mechanism to quit the EU.
“There was definitely an air that full Brexit wasn’t necessarily a done deal yesterday,” London-based Deutsche Bank AG strategist Jim Reid wrote in a note to clients. “But we won’t know that for many, many months and possibly much longer -- so expect lots of mood swings ahead.”