Sterling recovers after Johnson no-deal comments, as Brexit talks set to continue

LONDON: Sterling dropped on Friday after UK Prime Minister Boris Johnson told businesses to get ready for a no-deal Brexit, but it quickly bounced back as Johnson did not say that the UK would quit negotiations with the European Union. The UK had set Oct. 15 as a deadline by which it would quit talks if a deal had not been reached, and markets were waiting to see if it would, after an EU summit resulted in what the UK said was a disappointing lack of progress.
But although on Friday Johnson said that the UK should get ready for an Australia-style deal, he did not say the UK would quit talks, which analysts said was the reason the pound rebounded from its initial drop.
Before Johnson spoke at 1054 GMT, the pound was around $1.296. It then lost around a cent as it slid as low as $1.286, before pinballing up and down for 10 to 20 minutes. At 1133 GMT, it was back at $1.2911, up 0.1% on the day.
Versus the euro it saw similar yo-yos, and was at 90.90 pence per euro, down around 0.1% on the day at 1134 GMT.
“Preparation for a no-deal is a very different statement to an actual no-deal,” said Neil Jones, head of FX sales at Mizuho.
“The initial market reflex action was to pound on elevated chances of a no-deal. However, the majority of participants do expect a deal of some form to emerge, despite the recent headlines,” he said.
The EU is still getting ready for intense trade talks in London next week.
One EU diplomat told Reuters that Johnson’s comments were “just rhetoric”.
Kit Juckes, head of FX strategy at Societe Generale said most people still expect a last-minute deal will be reached, but that this view will be reconsidered as the Dec. 31 deadline gets closer.
“Euro-sterling’s still under 0.91 – sterling’s not in free-fall here by any stretch of the imagination,” he said.