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Pound Spurred by Fear of the Future Shrugs Off Good News

Posted by Chris Advincula on Oct 28, 2016 8:16:22 AM


(Oct 28 Bloomberg) The pound's reaction to this week's report on gross domestic product provided an insight into currency traders' attitude toward Brexit.

Sterling fell on Thursday, even after the first growth data to cover the period since the June 23 referendum came in ahead of analysts' predictions. That underscored how the U.K. currency tends to shrug off economic good news and yet decline when concerns flare up on Britain's exit from the European Union.

A Citigroup Inc. index showed that economic reports have generally beaten forecasts since the vote, yet the U.K. currency has tumbled 18%.

"Sentiment toward the pound is still very negative and it's going to take something more significant to shift that sentiment," said Lee Hardman, a London-based foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd.

While the pound gained about 0.2 percent after the Office for National Statistics said Thursday that the U.K. economy grew 0.5 percent in the third quarter, the move dissipated within minutes. The currency fell 0.3 percent Friday to $1.2134 as of 12:01 pm in London, compared with the 31-year low of $1.1841 reached in the flash crash earlier this month.

The decline followed reports that the U.K. government had won a Brexit court case in Northern Ireland. A judge there rejected a pair of challenges to the exit process, removing at least one obstacle to Prime Minister Theresa May's plan to begin severing ties with the EU by the end of March. The case, which can be appealed, is separate from one in a London court also challenged the exit procedure.

"The timing was perfectly clear," said Jordan Rochester, a foreign-exchange strategist in London at Nomura Holdings Plc, referring to sterling's drop following reports of the court decision. "It's a different area of the constitutional law, but the market is going to imply a lower probability of a ruling in favor of the claimant in the U.K. case, even though it's completely different."

The pound tumbled more than 4 percent in the week ended Oct. 7, when Prime Minister May's rhetoric to the ruling Conservative Party conference brought home to investors the potentially stark choice between managing migrant numbers and securing good access to the EU's 500 million-plus consumers.

Click on the link below to see the full story from Bloomberg: (by Charlotte Ryan)

Pound Spurred by Fear of the Future Shrugs Off Good News



Topics: GBPUSD, U.K. Economy, Forex, Fundamentals, BREXT, U.K. GDP


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