Daily Brexit update: Mind the news gap

Is sterling over-reacting to second-tier headlines?

Daily Brexit update: Mind the news gap

What do markets do when there’s any sort of hiatus in top-tier news? Typically, markets attempt to ‘fill the breach’ by reacting (often over-reacting) to developments that would usually be deemed secondary, if not trivial. As widely expected, including by us, here, the dearth of material developments has left sterling traders to prey to the run of headline driven sentiment; and not all headlines will turn out to be as important or material beyond the relatively short term. There’s been a fair amount of headline-grabbing comment that is factually correct whilst stating little that was not already known or suspected. The head of Northern Ireland’s civil service expects “grave” consequences for the region in the event of a no-deal Brexit. Closer to home, Labour heavy hitter John McDonnell reportedly sees the chances that MPs in his party voting for Prime Minister Theresa May’s returned Brexit deal on or by 12th March as low. In the meantime, mood music filtering out of the only high-level talks taking place between the EU-Brussels this week doesn’t sound hopeful. UK is represented by Attorney General Geoffrey Cox, yet the chances of a breakthrough remain low. Few of these points are revelations. And whilst volatility measures show expectations of sterling gyrations over the next month or so rising again from recent multi-month lows, the pace isn’t eye-catching. Realised volatility is also contained. The pound against the dollar is set for its fourth consecutive daily fall though the down moves are well short of the biggest daily ranges of November, December and to a lesser extent, January. Sterling against the dollar has returned to a prior short-term range bounded by support close to $1.31 for a U.S. session  low, where the rate duly bounced. A spike to $1.3160 high followed before the down move resumed. The uptick was well short of Tuesday’s $1.3197 high, suggesting sellers continue to target the $1.3094. It would take trade below there to raise the ‘threat level’.

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