Sterling rallies as report stirs hopes for May’s new Brexit plan

January 25, 2019

By Vatsal Srivastava

SINGAPORE (Reuters) – Sterling rallied to its early November highs against the dollar on Friday after The Sun reported that Northern Ireland’s Democratic Unionist Party has privately decided to offer conditional backing for Prime Minister Theresa May’s Brexit deal next week.

The sterling has been under pressure over recent weeks on the Brexit uncertainty, a period in which growing pessimism over the global economy pushed investors toward the safe-haven dollar. The Sun report lifted the pound 0.3 percent to $1.3107 in early Asian trade.

“If this report is true, I expect sterling to rally to 1.32. A technical breakout to 1.38 is also a possibility,” said Michael McCarthy, chief markets strategist at CMC Markets.

The dollar held firm against most of its peers in the face of the global economic worries, with the European Central Bank proving the latest warning about the dimming outlook, forecasting weaker-than-expected growth in the eurozone for the near term.

Earlier in the week, China reported its weakest growth in three decades, and the International Monetary Fund downgraded its forecasts for the global economy for this year and next.

The greenback was also supported after U.S. Commerce Secretary Wilbur Ross said on Thursday that the United States and China are “miles and miles” from resolving trade issues. Trade tensions between the world’s two largest economies have kept a lid on investor risk appetite in the new year, as it did for long periods last year.

The euro was off a touch at $1.1304, languishing near its mid-December lows, and analysts see more pressure as monetary policy is expected to remain accommodative in the euro area over this year.

The dollar index, a gauge of its value versus six major peers, was up a little at 96.52.

Overall, the dollar is facing a tough year ahead as growth at home and globally comes under pressure and the Federal Reserve moves ever closer to pressing the pause button on its steady rate-hike cycle. Interest rate futures are pricing the Fed to stand pat on rates through 2019, a turnaround from the four hikes delivered by the central bank last year in a major boost to the dollar.

Against the yen, the dollar was steady at 109.64.

The Aussie dollar eased 0.16 percent to $0.7082 while kiwi dollar was also off a little at $0.6756.

(Reporting by Vatsal Srivastava; Editing by Shri Navaratnam)