Brexit Deal Optimism Drives Pound, UK Bank Stocks Higher
October 11 2019 - 8:29AM
Dow Jones News
By Anna Isaac and Caitlin Ostroff
Signs of optimism that the U.K. could reach a divorce deal with
the European Union drove the pound and U.K bank stocks sharply
higher Friday.
Sterling climbed as much as 1.7% against the U.S. dollar on talk
of a breakthrough between the two sides after months of worsening
relations, causing investors to review their bets on the currency
losing further value. U.K. bank stocks rallied hard with shares in
Royal Bank of Scotland Group PLC (RBS.LN) and Lloyds Banking Group
PLC (LLOY.LN) rising more than 10% and Barclays PLC (BARC.LN)
gaining 5%.
Investors attributed the sharp rise to positive remarks from
Donald Tusk, European Council President. He said that the Irish
taoiseach and the UK prime minister "saw for the first time a
pathway to a deal."
"I have received promising signals from the taoiseach that a
deal is still possible," Mr. Tusk said Friday.
Analysts agreed that there were still hurdles to be overcome in
the Brexit process in order for a deal to be sealed prior to the
Oct. 31 deadline. However, "something meaningful" had clearly been
accomplished in the meeting between Leo Varadkar and Boris Johnson,
Derek Halfpenny, head of research global markets at MUFG Bank
said.
A deal is more likely to be passed by parliament than previous
attempts because key euroskeptic groups of lawmakers believe Mr.
Johnson could pursue a looser long-term relationship with the EU
than his predecessor Theresa May.
However, while the pound climbed 1% on the signs of the
breakthrough, it is still unlikely to return to pre-referendum
strength. The currency has still lost close to 17% of its value
against the U.S. dollar since the vote, and the greenback has
gained in strength in recent years, analysts said.
"Looking at the longer-term picture, we are still very much in
the range for sterling that we've been in for the three-year
period," John Wraith, head of U.K. rates strategy at UBS Group AG,
said. UBS still expects the value of the pound to be in a range of
$1.05 to $1.50 in scenarios ranging from a hard Brexit to a new
referendum and the U.K. remaining in the EU.
"Most likely is this what we're calling the middle ground where
we sort of limp around with one extension after the other or we
then get a deal that sees the U.K. go into transition," he
said.
UBS has started recommending that clients stay light on risk for
the pound and put options--a type of insurance against sudden
changes in price moves--against the euro or dollar as it expects
that to react to Brexit headwinds in the future.
Write to Anna Isaac at anna.isaac@wsj.com and Caitlin Ostroff at
caitlin.ostroff@wsj.com
(END) Dow Jones Newswires
October 11, 2019 08:14 ET (12:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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