Sterling gains, shrugs off Brexit minister’s resignation

LONDON: Sterling rose on Monday, hitting its highest level since June 14 as traders shrugged off the British Brexit minister’s resignation and focused on the newly- announced plan by the prime minister that they believe makes a “soft Brexit” likely.

The British currency gained 0.2 per cent to US$1.3321 after earlier reaching US$1.3328 before news of the resignation caused a temporary dip.

Against the euro, sterling remained steady at 88.38 pence per euro.

David Davis resigned overnight as Brexit minister because he was not willing to be “a reluctant conscript” to Prime Minister Theresa May’s plans.

While Davis’ resignation underlined how tough it is for May to impose cabinet discipline around a softer Brexit, analysts said the market was pleased by the prime minister’s plan – announced on Friday – for life after the EU.

May managed to get her government to agree a deal that the market believes makes a “soft” Brexit, under which Britain retains a close trading relationship with the European Union, more likely.

“She’s survived resignations before she can survive again,” said Jordan Rochester, a currencies strategist at Nomura, adding that the material change for the pound would be if her government looked at risk of collapsing.

“It’s a softer Brexit and it’s a plan. A plan is better than no plan. The market is extrapolating that the EU will get more concessions out of the UK,” bringing the two sides towards something like a customs union favoured by markets, Rochester said.

Broad-based dollar weakness also supported the pound’s bounce on Monday, while a raft of economic data due out this week could raise expectations of a Bank of England interest rate rise in August if they point to growing economic momentum in the second quarter.

Sterling has climbed 2 per cent since it hit a 7-1/2 month low in late June, boosted by improving economic sentiment and signs that May had faced down the so-called hard Brexiteers in her cabinet and agreed a plan that would maintain close UK and EU trade ties after their divorce.

“News that Brexiteer David Davis has resigned looks welcome news to those looking for a soft Brexit. The question will be what further backlash ( leadership attack) May now faces from the right wing of the party,” said ING analysts in a note to clients. — Reuters