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Pound extends rally as May secures Brexit deal revision

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By Agence France-Presse

The pound extended its rally in Asian trade after British Prime Minister Theresa May hammered out a revision to her controversial Brexit deal she hopes will be enough to push through parliament.

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British MPs face a series of vote in parliament this week that could see an extension to the March 29 deadline for leaving the European Union (AFP / MANILA BULLETIN)

The surge in sterling came as regional equity markets pushed higher following a positive lead from Wall Street, with tech firms tracking an upbeat outlook for Apple, energy firms rising with oil prices and dealers cheered by improving US retail sales.

With a key vote on her agreement due later in the day, May said she had secured “legally binding” guarantees with the EU over the main sticking point of the Irish border question.

The news reinforced hopes the country will have some sort of deal in place once it exits the bloc.

If her plan is still dismissed by MPs, there will be a vote Wednesday on whether to continue to leave without a deal — considered economically catastrophic by many — and if that fails to pass then another will take place on extending the March 29 exit deadline.

“From today for three days the market will be closely watching the UK lower house votes over Brexit,” Mizuho Securities said in a note.

The main scenario is that the Tuesday vote will be denied, the Wednesday vote will approve avoiding a hard landing, and the Thursday vote will decide the extension until the end of June, it said.

“If the extension is pushed back to December 2019 or later, that would be favoured by the market with possibility of the second referendum that may deny Brexit,” it said.

The pound has risen about 1.5 percent against the dollar since late Friday, while it is up around two percent on the euro.

‘Fragile foundations’

The broadly upbeat mood has also lifted higher-yielding currencies against the greenback as investors return to riskier assets.

On equity markets Tokyo’s Nikkei went into the break 1.9 percent higher, while Shanghai was up 1.5 percent and Hong Kong put on 1.3 percent.

Sydney rose 0.3 percent, Singapore jumped 0.9 percent and Seoul added 0.8 percent, with Taipei more than one percent higher and Manila piling on 0.6 percent.

The gains follow last week’s sharp sell-off that was fuelled by worries over the global economy, with the OECD lowering its 2019 forecasts, the European Central Bank sounding a negative note on the eurozone’s outlook and Chinese trade taking a hammering.

However, OANDA senior market analyst Jeffrey Halley warned that things could still turn ugly.

“Investors are clearly in an optimistic mood despite nothing having changed materially around the world. Investors should be cautious, however, because the rally is built on fragile foundations. It would be wise to stay nimble in a headline-driven market,” he said in a note.

Dealers are keeping tabs on developments in the China-US trade talks, with top officials holding phone talks Tuesday to discuss the next steps, though the White House said no date has been set for a summit at which a final deal can be signed.

Oil prices extended gains, lifting the region’s energy sector, as Saudi Arabia extended output cuts, while Venezuela struggles under a blackout that has hampered production in the country.

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