CURRENCIES: Pound Edges Higher Against Dollar, Euro As EU Talks Compromise 'Brexit' Deal

By Mark DeCambre, MarketWatch

The British pound gained against its major rivals on Wednesday as currency traders focused on progress in talks between the U.K. and the European Union, as the country attempts to amicably exit from the trading bloc with a trade pact arrangement in tow.

A report from Bloomberg News (https://www.bloomberg.com/news/articles/2018-10-10/brexit-talks-zero-in-on-u-k-customs-fix-as-deal-optimism-grows) said that EU officials are discussing "a compromise Brexit deal," which would see the U.K. retain--at least temporarily--some of its pre-Brexit customs arrangement.

The sticking point in hardscrabble negotiations between officials from the European trade bloc and the U.K. center on how to avoid erecting a physical border between Northern Ireland, part of the U.K. proper, and Ireland an EU member. How the overall Brexit deal should be enforced also has been a hot-button issue.

Reports, however, have signaled that despite differences between London and Brussels on Brexit could be achieved in time for a critical summit of EU leaders next week (http://www.marketwatch.com/story/negotiatiors-for-uk-eu-nudge-closer-to-brexit-deal-2018-10-09). That would still leave the two sides to agree on an outline on their future trade and security ties and for the U.K. and European parliaments to ratify a deal before the scheduled split on March 29.

"Sterling is being lifted by hopes of a Brexit deal between the UK and EU. That's difficult to capture within our high-frequency currency indicators but, where is does show through, it is definitely providing reasons for strength," wrote Steven Barrow, currency and fixed-income strategist at Standard Bank, in a Wednesday research report.

Indeed, the British pound , rose above its 10-day high on Wednesday to $1.3171, up 0.2% on the day, compared with $1.3142 late Tuesday in New York.

Meanwhile, pressures on China's currency continue to mount amid tariff tensions with the U.S. and signs of a slowing economy. Investors have been betting that the dollar will soon buy a record amount of yuan above a key psychological line in the sand at 7.00.

The Chinese yuan most recently was flat at 6.9227, compared with 6.9228 on Tuesday, while the offshore yuan , which trades more freely, was at 6.9315, up 0.2%, according to FactSet data.

Traders worry that a weakening yuan could ripple through global markets as China's stock market also demonstrates signs of fragility.

See:Treasury's Mnuchin warns China against currency devaluation as yuan falls: report (http://www.marketwatch.com/story/treasurys-mnuchin-warns-china-against-currency-devaluations-as-yuan-falls-report-2018-10-10)

"[The markets] continue to underprice the destabilizing effect of a weaker yuan will have on global equity markets," wrote Stephen Innes, head of trading at Oanda, in a Wednesday late-Tuesday report. China's Shanghai Composite Index ended Wednesday up marginally but is down nearly 18% so far in 2018, underlining sentiment in the second-largest economy.

Check out: Here's why traders think the Chinese yuan could reach a record low against the dollar (http://www.marketwatch.com/story/heres-why-traders-think-the-chinese-yuan-could-reach-a-record-low-against-the-dollar-2018-10-09)

Meanwhile, the dollar, as measured by the ICE U.S. Dollar Index , was virtually unchanged at 95.661. The index is a gauge of a half-dozen dollar rivals, which is heavily influenced by the euro . The euro was trading at $1.1504 against bucks, compared with $1.1493 late Tuesday.

Elsewhere, the Japanese yen weakened against the buck, recently trading at Yen113.23, versus Yen112.95 in prior session.

(END) Dow Jones Newswires

October 10, 2018 08:05 ET (12:05 GMT)

FTSE 100
Index Chart
From Mar 2024 to Apr 2024