Thursday, 31 August 2017

Sterling licks wounds vs resurgent euro; outlook weak

LONDON (Reuters) - Sterling nursed losses on Wednesday after falling to an 11-month low against the euro in the previous session as investors remained sidelined with little interest in trading the currency amid ongoing Brexit negotiations.

Against the euro, the British pound recovered some ground to trade at 92.47 pence after falling on Tuesday to its weakest level since early October at 93.07 pence per euro.

The British pound has fallen more than 3 percent so far this month against the euro and is set for its fourth consecutive month of losses.

Sterling was broadly flat against the dollar at $1.2906.

“We are staying away from the sterling for now as it remains a headline driven currency even though on a valuation basis it looks attractive,” said Thomas Flury, global head of currency strategy at UBS Group AG.

Investors focussed on the third round of Brexit negotiations which started on Monday, with the European Union’s chief negotiator saying he was concerned at the slow progress of the talks.

The British government has laid out a series of position papers that have outlined compromises over some of the issues likely to block progress in talks this year, but EU officials say Britain needs to settle its divorce bill with the bloc before a trade agreement can be discussed.

Morgan Stanley strategists said the sterling will likely weaken further against the euro until October’s British party conference season when investors will be watching for any disagreements internally within the ruling Conservative party.

On a trade-weighted basis, sterling was trading at 75, its lowest level since November 2016.

While market analysts say sterling remains among the most undervalued currencies on a trade-weighted basis among its major rivals, the uncertainty around Brexit negotiations and the toll it is taking on the broader economy has discouraged investors from buying sterling-denominated assets.

U.S. stocks rebounded from a sharply lower open on Tuesday and helped an index of global equity markets pare losses as investors shrugged off concerns over North Korea’s latest missile test.

Treasury yields were off early lows and the dollar index , which measures the greenback against a basket of six major currencies, traded little changed on the day.

The dip in risk appetite that dominated most of the trading session and sent benchmark 10-year U.S. Treasury yields lower and gold to a more-than-nine-month peak gave way as the U.S. trading session progressed.

MSCI’s world index , which tracks shares in 46 countries, was down 0.29 percent, after earlier falling as much as 0.57 percent to a one-week low on heightened worries about North Korea.

North Korea fired a ballistic missile over Japan’s northern Hokkaido island into the sea on Tuesday, prompting a warning from U.S. President Donald Trump that “all options are on the table” as the United States considers its response.

“When the President says ’All options are on the table,’ the best strategy for investors is sometimes to do nothing,” said Brian Jacobsen, senior investment strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

Market analysts were relieved that the rift did not escalate further, with Trump’s focus on the devastation caused by Tropical Storm Harvey, the most powerful hurricane to strike Texas in 50 years when it made landfall last week.

“While it’s possible all these unfortunate events can add up to something more consequential, the economy is pretty darn big and resilient,” Jacobsen said.

The Dow Jones Industrial Average .DJI rose 56.97 points, or 0.26 percent, to finish at 21,865.37, the S&P 500, gained 2.06 points, or 0.08 percent, to close at 2,446.3 and the Nasdaq Composite added 18.87 points, or 0.3 percent, to end at 6,301.89.

Reference: Saikat Chatterjee

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