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FX round-up: Sterling in 'sea of red' after Tory wobble

By Digital Look

Date: Monday 22 May 2017

FX round-up: Sterling in 'sea of red' after Tory wobble

(ShareCast News) - Sterling was amid a sea of red as Tory-renewed fears of a hard Brexit came to the fore and the party did a U-turn on its so-called 'dementia tax,' all while Labour accelerated in the election polls.
At 17:03 BST, sterling was down 0.24% to $1.3005, and fell 0.49% to €1.1577. The dollar-spot index slipped 0.13% to $97.012.

The swirl of unease surrounding sterling was centred on PM Theresa May's humiliating climb-down, and Brexit Secretary David Davis' stoking of EU divorce embers at the weekend.

"It's a sea of red for sterling on the currency markets today, with the pound sliding below €1.16 against the euro for the first time since late-March," said Chris Saint, senior analyst at HL Currency Service.

"The underlying cause once again seems to be renewed talk of a potential 'hard Brexit'."

At the weekend, Davis insisted the government could walk from Brexit talks unless the EU quit its demands for the UK to pay a €100bn divorce bill.

Connor Campbell, financial analyst at Spreadex, added that the Tory wobble continued to dominant trading Monday, although May's major U-turn helped the cable recover some of its losses.

"It wasn't so lucky elsewhere, however: after Angela Merkel told a group of school children that the euro was 'too weak', the currency went on another run (higher)," he said.

Meanwhile, the latest survey from Opinium Research showed Labour cutting the Conservatives' lead to 13 points from 15 points a week earlier, while a YouGov survey in the Sunday Times put Labour nine points behind. This is the first time it has had a single-digit gap since September.

Sterling was also down on the aussie, loonie, kiwi, rand and yen. Traders would be looking to the UK's second-estimate GDP on Thursday, and the start of a two-day G7 leaders' summit on Friday.

"All the hype around the pro-business policies that Donald Trump will implement helped push the greenback higher and higher after his election," said David Madden, market analyst at CMC Markets UK.

"Now, that there are major questions about how long he will be in office, dealers are dumping the dollar," he said.

"Later this week, the Fed will release their minutes from the April meeting, and this will give the market an insight into what they are thinking," he said.

"It would be a risky move to increase interest rates while the political situation is unstable."

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