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Sterling stages a 'dead cat bounce' but analysts expecting further dips

Published 12/10/2016

Sterling bounced back against most major currencies
Sterling bounced back against most major currencies

The pound staged a relief rally on hopes of a "full and transparent" debate on Brexit proposals in Parliament, but experts warned over further falls for battered sterling.

Sterling made a cautious bounce back against most major currencies as Prime Minister Theresa May allowed Conservatives to back a Labour call for "proper scrutiny" of the plan, although she refused to commit to a Commons vote on the strategy.

The pound rose nearly 1% or a cent to 1.22 US dollars and was more than 1% higher at 1.11 euro.

It has been hammered since Mrs May announced earlier this month the formal Brexit negotiation process would start by the end of March 2017, suffering a further dramatic hit in last Friday's flash crash.

Kathleen Brooks, research director at City Index, said: "If Parliament can debate the plans, then the Prime Minister may have to soften her approach to negotiations, which could remove some of the market fears about the negative economic impact of Brexit."

But the pound's modest rally stumbled earlier in the session when the UK's cabinet minister in charge of leaving the EU, David Davis, struck a less conciliatory tone and said the Brexit vote would be respected.

City experts warned there may still be further falls for the battered pound.

Neil Wilson, markets analyst at ETX Capital, said: "This relief rally looks like a dead cat bounce. It could just be a short pause before sterling takes another leg lower towards 1.20 US dollars."

Ms Brooks said Brexit negotiations were just one of many factors pushing sterling lower.

She added: "There are many barriers to a pound recovery, including low interest rates from the Bank of England and strength in other currencies, such as the yen and the US dollar, where interest rates could rise in December."

In equity markets, the FTSE 100 Index slipped 33.2 points lower to 7037.7, after hitting a new intraday record on Tuesday of 7129.8.

It failed to hold on to gains and finished lower on Tuesday at 7070.9, just shy of the record close of 7104 reached in April 2015.

The top tier's performance is closely linked to the pound, with sterling's gains sending it lower as many of the firms listed on the FTSE 100 make their earnings overseas and benefit from a weak pound.

On Wall Street, the Dow Jones Industrial Average made tentative gains after falling 1% in the previous session.

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