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Pound path remains rocky with still no concrete Brexit progress

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The UK currency rallied in the later half of last week amid signs the two sides negotiating Brexit may settle for a broad-brush agreement by March 2019 and sort out the details later.

[LONDON] Pound traders may need more convincing to turn bullish.

The UK currency rallied in the later half of last week amid signs the two sides negotiating Brexit may settle for a broad-brush agreement by March 2019 and sort out the details later. Still, strategists and fund managers say that only served to emphasize how vulnerable the pound is to headlines, and how little concrete progress has been made on Brexit.

"For us, another week has ticked by and we are are absolutely no closer to agreeing how to deliver Brexit than we were two years ago," said Mark Dowding, a money manager at BlueBay Asset Management LLP, who has a short position on sterling. "The clock is now ticking down and it seems likely that Westminster will fail to deliver anything credible and this will lead Brussels to extend its own ‘take it or leave it' deal."

If recent trends are anything to go by, a Bank of England meeting and key economic data -- growth and employment -- due this week will be outweighed by Brexit headlines once again. The recent volatility in UK assets has prompted the market to push back pricing of a further BOE rate increase to February 2020, from November 2019 a week ago.

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UK Prime Minister Theresa May is set to gather her inner circle Thursday for a no-deal Brexit planning session, with investors continuing to focus on the possibility of Britain crashing out of Europe without an economic agreement.

As May faces a divided Cabinet, the stream of news over the next month will be broadly pound-negative with questions over the Prime Minister's leadership likely to persist, according to ING Groep NV analyst Viraj Patel.

Still, Patel doesn't see sterling falling much further from here and is advising investors to remain nimble with their positions, recommending buying dips below the US$1.27-$1.28 levels. The currency was at US$1.2970 Friday afternoon in London.

For Rabobank's head of currency strategy, Jane Foley, the recent news flow only serves to limit the pound's potential gains on a Brexit agreement. A deal that merely defers the uncertainty over Britain's future relationship with the EU beyond March would see the currency's rally capped, she said.

"If Brexit goes ahead with a deal, that's good news for sterling but it does mean that the rally we would get probably wouldn't be as significant as if we had all the details," Foley said in an interview with Bloomberg Television's Anna Edwards. "That means with the uncertainty pushed into the transition phase, sterling will still be vulnerable to the details."

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