Sterling unfazed by weak economic data, as Britain waits for EU Brexit response
Sterling was little moved today despite a surprise contraction in the services sector as investors waited to receive a formal European Union response to Britain’s latest Brexit offer.
The pound has found little direction in recent days, and is back where it was at the start of the week.
Britain’s economy appears to have tipped into recession, according to the latest IHS Markit/CIPS services Purchasing Managers’ Index.
The index fell by more than any economist predicted in a Reuters poll, tumbling to a six-month low of 49.5, below the 50 level that divides growth from contraction.
Despite this however, the pound managed a small rise and was last up 0.1% at $1.2315 while against the euro it was up 0.1% at 89 pence.
Analysts say the market is largely sceptical that the EU will agree to Britain’s latest offer to avoid a no-deal departure from the European Union on October 31.
But with hedge funds covering some of their short bets against the pound, the currency has held at current levels.
A European Parliament Brexit group believes the new proposals “do not represent a basis for an agreement”, according to the draft of a statement seen by Reuters ahead of release later in the day.
Should the EU reject Britain’s Brexit proposal, attention will turn to the “Benn bill” that compels the government by October 19 to seek an extension to Brexit until January 31, 2020, if no deal is reached during an EU summit on October 17 and 18.
But British Prime Minister Boris Johnson again told his Conservative Party at their annual conference yesterday that Britain would leave the EU on October 31 with or without a deal.
Sterling had enjoyed a strong rally in late September as investors bet that lawmakers would be able to stop a no-deal exit.