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Pound surges on Brexit fever as trade hopes boost world stocks
LONDON, Oct 12, 2019 (BSS/AFP) – The British pound surged on Friday as
traders detected signs that London and Brussels could still win the race
against time to avoid a no-deal Brexit.
Global stock markets meanwhile powered ahead, boosted by hopes that
Washington and Beijing are getting closer to ending their trade war.
“Global stocks continued to rally on the back of optimism the US and China
will reach an agreement of some sort to prevent any further escalation in
their bitter trade war,” said Fawad Razaqzada at Forex.com.
Gold fell as did the dollar, making it a “risk-on” day overall, he said.
Oil prices saw sharp rises, sparked by an Iranian tanker being hit by
suspected missile strikes off the coast of Saudi Arabia.
– Pound on a roll –
The pound had a rollercoaster day, at first falling after EU Council
President Donald Tusk said Britain had not come up with a workable Brexit
deal, seemingly pouring cold water on the previous day’s optimism sparked by
a joint British-Irish statement about a “pathway” forward.
But then the currency took off when EU member states gave Brexit
negotiator Michel Barnier the go-ahead for more intense talks with Britain
over the weekend, just days before a key European summit.
David Cheetham at XTB said the latest developments may “well be a pivotal
turning point in negotiations” but more “clarity” was needed.
Analyst Razaqzada at Forex.com also seemed to question the wisdom of
buying into the British currency with such abandon despite lacking all the
facts.
“Traders are evidently happy to be buying the rumours and will be asking
questions later,” he said.
The rally inflicted heavy losses on investors having bet on a further fall
in the pound, as they were caught in a “short squeeze”, analysts said.
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– ‘Huge meeting’ –
If a Brexit deal suddenly appeared on the cards against all the previously
assumed odds, a similar scenario also seemed plausible Friday for a US-China
trade agreement — which has so far appeared just as elusive.
President Donald Trump said Chinese and American officials were working
toward meaningful progress in trade talks.
This fed a stock rally, with Wall Street erasing the week’s losses as
investors bet on at least a partial pact, and European stocks well up at the
close.
“Trump welcomes Chinese Vice Premier Liu He to the White House after
productive talks with his trade team on Thursday in what could be the first
step towards de-escalating the trade war that has plagued the global economy
for the last year,” said Craig Erlam at OANDA, calling the encounter a “huge
meeting”.
– ‘Fuel on fire’ –
In commodities, oil was catapulted higher after an Iranian tanker was hit
by suspected missile strikes off the coast of Saudi Arabia, sparking fresh
conflict fears one month after attacks on Saudi oil facilities that were
blamed by Washington on Tehran.
“This clearly puts fuel on the Middle East fire,” SEB commodities analyst
Bjarne Schieldrop told AFP.
“After the attack on Saudi a few weeks ago, it’s not a matter of if we get
new comparable events — but when, and how much.”
On September 14 attacks on Aramco plants in Abqaiq and Khurais initially
halved the kingdom’s crude output and set oil markets alight.
Friday’s blasts could escalate quickly and spell more global economic
turmoil, according to Nordea Markets analyst Thina Margrethe Saltvedt. “The
risk premium is rising,” she told AFP.
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