Pound hurt by de­bate on ‘Brexit’

The Pak Banker - - MARKETS/SPORTS -

The pound is suf­fer­ing as the forth­com­ing ref­er­en­dum on Bri­tain's mem­ber­ship of the Euro­pean Union looms large. And with no date for the vote hav­ing been set, traders are sig­nal­ing there's lit­tle chance of a sus­tained re­bound in the Bri­tish cur­rency.

Ster­ling de­pre­ci­ated for a se­cond week against the euro as Prime Min­is­ter David Cameron lob­bied other govern­ment lead­ers on a deal that may al­low him to hold a vote as early as June. A date is only likely to be set, though, fol­low­ing a sum­mit in Brus­sels on Feb. 18-19.

Some polls show sup­port for "Brexit" is in­creas­ing, with 45 per­cent of re­spon­dents to a YouGov PLC sur­vey last week say­ing they'd vote to leave, while 36 per­cent wanted to stay and 19 per­cent were un­de­cided. The econ­omy is un­likely to prove ster­ling's sav­ior in the in­terim, with re­ports this week fore­cast by an­a­lysts to show man­u­fac­tur­ing and in­dus­trial pro­duc­tion stag­nated in De­cem­ber.

"The pound will re­main choppy un­til we have a clear date for the EU ref­er­en­dum vote," said Vi­raj Pa­tel, a cur­rency strate­gist at ING Bank NV in Lon­don. "Data comes last in the peck­ing or­der of fac­tors in­flu­enc­ing the pound now with global risks and Brexit com­ing be­fore that." The Bri­tish cur­rency slipped 1.2 per­cent in the week to 76.99 pence per euro as of 5:15 p.m. Lon­don time on Fri­day, hav­ing de­pre­ci­ated in 10 out of the past 11 weeks. It fell Fri­day to $1.4469, par­ing its weekly gain to 1.6 per­cent.

Traders have be­come more bear­ish on ster­ling ver­sus the euro this year. The pre­mium for three-month op­tions to buy the shared Euro­pean cur­rency against the pound, over those to sell, climbed to 0.74 per­cent­age point, from 0.24 per­cent­age point on Dec. 31, data com­piled by Bloomberg show.

Bri­tain's un­even re­cov­ery has prompted in­vestors to push back the prospect of an in­ter­est-rate in­crease by the Bank of Eng­land un­til af­ter April 2017, ac­cord­ing to for­ward­sprices.

Ian McCaf­ferty, the BOE's only pol­icy dis­senter of the past six months, dropped his call for higher rates on Thurs­day, while of­fi­cials cut their growth and in­fla­tion fore­casts. Ster­ling fell even as Gov. Mark Car­ney said the whole rate­set­ting com­mit­tee still thinks the next move will be an in­crease.

Bri­tish govern­ment bonds were lit­tle changed last week. The yield on the bench­mark 10-year gilt held at 1.56 per­cent, while the price of the 2 per­cent se­cu­rity due in Septem­ber 2025 was 103.90 per­cent of face value.

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