Sterling holds firm despite Brexit risks and economic woes

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A woman holds British pound banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration

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LONDON, June 28 (Reuters) – The pound rose against the dollar on Tuesday and remained stable against the euro, despite rising Brexit risks and a troubled economic backdrop.

After a flat start to the session, at 0846 GMT the currency was up 0.16% against the dollar at $1.22850 and 0.06% against the euro at 86.215 pence.

On Monday, British Prime Minister Boris Johnson pushed ahead with plans to push legislation through parliament this year to scrap some of the rules on post-Brexit trade with Northern Ireland. Read more

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“So far the pound has changed little. Should the bill adopt its current form, it would clearly lead to a significant deterioration in relations with our main trading partner and it would be a big drag on the pound,” he said. said Colin Asher, senior economist at Mizuho.

But the bill still has to go through the House of Lords, so any potential downturn in the currency is still far in the future, Asher said.

The focus instead remains on the UK economic backdrop, which saw inflation hit a 40-year high of 9.1% last month, the highest level among G7 countries.

Traders will be listening closely to Bank of England Governor Andrew Bailey, who is due to speak at the European Central Bank’s 2022 Central Banking Forum on Wednesday.

Meanwhile, a poll by US bank Citi and pollsters YouGov showed that the British public’s expectations for inflation in the coming years fell this month to their lowest level since January. Read more

But analysts say UK inflation has yet to peak and some are expecting bigger rate hikes of 50 basis points by the Bank of England this summer.

“It’s better to overdo it and relax next year than to underdo it in the short term as their inflation-fighting credentials come into question,” Asher said.

Aggressive rate hikes are also expected from the Fed, but the US central bank is expected to suspend hikes towards the end of the year, and the resulting narrowing of interest rate spreads should support the pound. , did he declare.

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Reporting by Lucy Raitano Editing by Raissa Kasolowsky

Our standards: The Thomson Reuters Trust Principles.

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