Pound get some respite from sell-off against euro

For Britons looking to escape the UK in an increasingly wet August, the pound might offer some relief with a recovery against the euro.

Sterling ended a record run of losses against the common currency this week and analysts are cautiously optimistic on its near-term prospects. Growing resistance among opposition policymakers to a no-deal Brexit has led traders to cut the probability of the UK leaving the European Union on October 31, while a lot of pessimism is already baked into the market by fund managers.

Sterling has had a tumultuous few weeks since Boris Johnson succeeded Theresa May as UK Prime Minister, with a promise to deliver Brexit on October 31 “do or die”. That saw the pound extend its slide against the euro to 14 straight weeks and had fund managers and strategists considering the risk of a plunge to parity against the dollar.

With the pound recovering 2 per cent in the past five days to 91 pence per euro and bouncing above $1.21 after Labour leader Jeremy Corbyn sought rival parties’ support, the market’s bearish view might be coming under pressure, according to Jordan Rochester, a currency analyst at Nomura International. He sees the odds of Brexit by October at 41 per cent now, from more than 50 per cent earlier this month.

“The market is clearly witnessing a further position reduction on the Remainer news flows” and this is supporting sterling, Mr Rochester said. “The pound remains hostage to the latest random and unpredictable headline from politicians. It seems clear that a vote of no confidence is a positive and the market has now assigned a higher chance of that going through.”

Before the latest bounceback, hedge funds and asset managers were continuing to add to short positions, with the latter the most pessimistic on sterling since records began in 2006, according to data up to August 6 from the US Commodity Futures Trading Commission.

There is little time for opposition to call a vote of confidence in Mr Johnson after parliament returns from its break on September 3 to force an election before the deadline, with Mr Corbyn’s proposal to lead a caretaker government also having received a mixed response. It might take an extension to the Brexit deadline to produce an election and provide “some near-term relief” for the pound, said Fritz Louw, a strategist at MUFG.