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Sterling remains under pressure despite rally

Mounting uncertainty over Britain’s Brexit deal with the European Union cast a shadow over foreign exchange markets today.

The euro and dollar were trading in a tight range and the yen benefited from demand for currencies deemed safer. The British pound, which yesterday suffered its worst day since 2016 after a number of ministers opposed to a Brexit deal quit the cabinet, clawed back some losses today as Prime Minister May stuck to her proposals.

Analysts say sterling remains under heavy pressure as Theresa May fights for her survival and for the Brexit deal. Investors predict more volatile days ahead over the next few months. They predict sterling could fall another 3-5% should the Prime Minister lose a vote of no confidence next week.

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In other areas the euro traded flat against the dollar at $1.1336 while the dollar measured against a number of currencies was unchanged at 96.954. That was not far off a 16-month high of 97.69 the dollar index had hit at the start of the week.

The euro had earlier gained on hopes that Italian Prime Minister Giuseppe Conte was looking to work with the EU over his government’s 2019 budget, which has been rejected by Brussels.

The single currency has rallied over the last three trading sessions, but is only up 0.3% against the dollar in the month to date, underscoring the strains from weakening economic momentum, Italian budget woes and Brexit uncertainty.

Currency markets are also watching closely the tensions between US and China as traders looked for definite  signs Washington and Beijing are seeking to de-escalate their dispute.

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