The British pound rebounded through a key level yet was still the worst-performing major currency since the UK left the EU at the end of January.
Sterling flirted around the $1.30 mark (€1.17) on Tuesday, recently up 0.1 per cent at $1.3006, yet failed to recover fully from its previous day’s drubbing. It had breached $1.30 in early trading, touching as low as $1.2942, to take it to its pre-election levels. Against the euro it was up a similar 0.1 per cent, with a €1 recently buying 84.97p.
The currency has dropped 1.5 per cent over the past two trading days, returning to its level before Boris Johnson’s Conservatives won a resounding victory in the December 12th general election. Tuesday’s move makes it by far the worst performer this month on Bloomberg’s world index of major currencies.
“The market is too long and the underlying trade concerns are real,” said Kit Juckes, a strategist at Société Générale. “If we see the pound against the euro near 90p or against the dollar at $1.28 or below it will be in the next few weeks or months. Better news for the currency grows slowly over a longer timeframe.”
The UK construction purchasing managers’ index rose to an eight-month high of 48.4 in January from a month earlier, easing the persistent decline in activity as client demand and business optimism improved. Tuesday’s IHS Markit/Cips figure was higher than economists’ expectations in a Reuters poll.
A reading below 50 indicates a majority of businesses reporting falling output compared with the previous month.
Public finances
Meanwhile, Britain’s public finances face a £12 billion deficit by 2022-23 instead of the £5 billion-surplus laid out in the Conservative’s election manifesto, according to Financial Times calculations.
Brussels and London set out on Monday their visions of the future relationship, with Michel Barnier, the EU's chief Brexit negotiator, making it clear that access to the bloc's market would come with tough conditions attached, particularly in terms of Britain's adherence to EU rules.
Mr Johnson insisted there was “no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment, or anything similar any more than the EU should be obliged to accept UK rules”. – Copyright The Financial Times Limited 2020
