Currency Trading: Hopes of Brexit Deal Boost Pound, Bank Stocks -- WSJ
October 16 2019 - 3:02AM
Dow Jones News
By Anna Isaac and Caitlin Ostroff
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 16, 2019).
The British pound and stocks of banks and home builders rallied
Tuesday on speculation that the U.K. and European Union might be
close to finishing a draft divorce agreement.
The currency climbed 1.4% against the U.S. dollar, reaching its
highest level in about four months and putting it on course to wipe
out losses from earlier this year. Shares in the region's banks --
led by Ireland's AIB Group PLC and the U.K.'s Lloyds Banking Group
PLC -- and in property developers such as Hammerson PLC were also
buoyed.
Negotiators from both sides are closing in on a draft Brexit
deal ahead of the midnight deadline, according to people familiar
with the talks. The market moves suggested optimism that a
breakthrough might finally be in sight, signaling an end to the
logjam in negotiations that has almost paralyzed the U.K. economy
for over three years. A deal would allow authorities and business
leaders to turn their attention to bolstering growth and
investment.
"A lot of the uncertainty that has been weighing on businesses
and consumption would be lifted," said Andrew Wishart, a U.K.
economist at research firm Capital Economics. "It could put rate
hikes back on the agenda at the Bank of England."
Any agreement would have to take into account how to handle the
border between Northern Ireland and the Republic of Ireland, an
issue that has been a major hurdle in discussions so far. U.K.
Prime Minister Boris Johnson would still need to secure approval
for a deal from lawmakers and the European Council. Most crucially,
the pact would also need support from the Democratic Unionist Party
of Northern Ireland, which has previously resisted any difference
in regulation between the region and the rest of the U.K.
"There's two phases to this: confirmation of a deal between
Brussels and London, and then getting it through parliament," said
Derek Halpenny, head of research, global markets EMEA at MUFG
Bank.
The pound hit a high of $1.28, its highest since June 12,
according to Dow Jones Market Data Group.
A confirmed deal could see sterling climb as high as $1.30 and
rise further to $1.33 if the accord got parliament's approval, Mr.
Halpenny said.
Sectors such as banks and airlines had already seen a recovery
in share prices as prospects for a deal have improved. This effect
could increase if it were confirmed, Mr. Halpenny said. "There's
more risk premium to be taken out of those sectors."
While the banking sector as a whole has long faced Brexit
pressures, Irish banks have particularly been hammered as they are
seen as vulnerable to economic implications from the U.K.'s
separation from the EU.
Shares in AIB rose 8.4% in Dublin, while Bank of Ireland Group
PLC gained 6.6%. Both stocks have taken a beating this year,
largely because of concerns surrounding Brexit and fears that a
disorderly exit by the U.K. could make the business environment
worse, hurting banking operations.
"A lot of pessimism was some time ago put into prices," said
Anastasia Turdyeva, an analyst at S&P Global Inc. She said she
expects the shares to remain volatile until there is more clarity
about Brexit.
In London, Lloyds and Royal Bank of Scotland Group PLC both rose
over 5%. Among real-estate firms, Hammerson surged 7% while Land
Securities Group PLC climbed 6%.
Write to Anna Isaac at anna.isaac@wsj.com and Caitlin Ostroff at
caitlin.ostroff@wsj.com
(END) Dow Jones Newswires
October 16, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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