Sterling drifts higher on Fed hopes rather than Brexit

Daily Brexit update: Sterling drifts higher on Fed hopes, not Brexit

Stepped-up no deal preparations and a finalised post-Brexit immigration system that introduces salary thresholds and sponsorship for skilled workers have not disrupted sterling’s updrift from last week’s 20-month lows. But a look at the boost to all major currencies as the dollar retreats ahead of a likely softened Fed stance underlines that sterling’s recuperation is not all that it seems. Data out earlier at least pointed to a stabilizing inflation outlook. Still, the 100^th day before Brexit sees Britain if not less able, not much better able to absorb the consequences than on the 200^th.

How this affects our Brexit Top 10 markets:

GBP/USD: Cable elevation ranged as much as 230 pips from the Wednesday 12^th low of $1.2475 to Tuesday’s $1.2705 high. GBP/USD was last at $1.2646. Note $1.2722, the mid-November spike low that is now key upper-range resistance. Hence GBP/USD has actually failed short of the range top and is in fact headed lower, albeit not under much pressure. $1.2554 support was established last Friday.

GBP/JPY: The cross’s first rise in four session has a top of ¥142.22 so far, 2 pips above Tuesday’s high. The rate was last at ¥141.96.

EUR/USD:  The euro looks almost purely greenback-driven on Wednesday. Just now, a 9-session high, but it was close to a spike high of $1.1443 that could pose resistance, particularly as the Fed prepares to unleash new guidance. Much depends on investors’ reading of how fast U.S. tightening may go from here; less so on Brexit.

EUR/GBP: This rate posts its biggest rise against the pound for a week. More drip-drip concessions from Italy are the chief reason. Here too, resistance was capping the move at the last check, with circa .9036 a clear and clean barrier since last Wednesday.

UK 100: A risk-on day despite a looming Fed hike are boosting global markets. Oil’s recoupment of some ground lost during Tuesday’s rout also helps London’s benchmark.

Germany 30: Italy news is helping European indices, but a 3% drop of shares in heavyweight Bayer prevents Germany’s main market from benefitting much. DAX is settling 0.2% higher compared to a 1.4% jump by Italy’s FTSE MIB.

Lloyds: Lloyds is up 0.6% though proximity to last week’s two-year lows makes its first rise this week look inconsequential.

Barclays: A slower pace of Fed hikes, which is what the market expects, is a negative for U.S. market rates, and ditto for Barclays’ large North American loan businesses.

Shell: Shell bounds 1.7%, in step with increasingly volatile oil prices.

BP: BP is adding a similar gain as its main rival on Wednesday. The group reportedly eyes the sale of $3bn in U.S. assets.