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The pound was struggling to stay afloat in Asian trade Friday after suffering a tumultuous slide overnight, as investors feared that political turmoil in the country would see it collapse out of control. the European Union without a divorce agreement.
Both the dollar and the yen benefited from the worsening of the crisis for British Prime Minister Theresa May following the resignation of key ministers from her government who compromised her plan for Brexit.
This left the pound vulnerable to further losses. He changed hands at $ 1.2792, barely stable after a 1.7% drop on Thursday, its largest percentage decline since October 11, 2016.
"The political turmoil is never good for the currency, but in the case of the UK, the pound could fall to 1.25 against the dollar in the prospect of an uncompromising Brexit, a challenge for leadership and a slower growth, "said Kathy Lien, general manager of monetary strategy. at BK Asset Management said in a note.
The resignations, including that of Brexit Minister Dominic Raab, came a few hours after May claimed the support of a draft divorce agreement. The hostility of the government and opposition legislators has raised fears that the deal will be rejected by Parliament and that Britain will leave the EU on March 29 without a safety net.
The May compromise plan, which aims to maintain close trade relations with the EU in the future, faces the opposition of Brexiteers, supporters of Europe, the party Northern Ireland who supports his government and even some of his own ministers, which increases the risk of his dismissal, Britain leaving the bloc without any agreement or even another referendum.
In the absence of an agreement, the United Kingdom would transition in March from a harmonious trade with the EU to the customs regimes established by the World Trade Organization for the external states. , which could cause panic in the financial markets.
However, some analysts believe that bulls have a reason not to throw their brief for the moment, pointing out that there is a risk of referendum with the choice between a difficult Brexit and the maintenance in the EU.
An instant poll on Sky News revealed that 55% of voters were in favor of another referendum, while 54% did not support any Brexit, 32% a tough Brexit and only 14% of May's agreement.
"A second referendum would probably result in a clear vote, a very positive result for the GBP, and we believe that the margin of progression has gone up more than the downside," said Adam Cole, chief currency strategist at the GBP. RBC.
The euro put 0.05% to 1.338 dollar. Investors were hopeful after the announcement in Italy that Italian Prime Minister Giuseppe Conte wanted to work with the EU on his government's 2019 budget, which was rejected by Brussels.
The single currency has risen over the last three trading days, but has increased by only 0.1% against the US dollar, highlighting the tensions resulting from the weakening economic dynamics in Europe, the Italian budget difficulties and uncertainty about Brexit.
The dollar index, an indicator of its value against six major competitors, rose 0.05% to 96.97, which is not very far from a record high of 97 , 69 reached in 16 months earlier this week.
Foreign exchange markets also monitored trade tensions between the United States and China as traders sought concrete signs that the economic powers were seeking to defuse their dispute.
According to a Financial Times article, Robert Lighthizer, the US foreign trade representative, told some industry leaders that a new round of US tariffs on Chinese imports had been suspended. But a spokesman for the US trade representative later denied the report.
"This is a clear sign of the fight between the doves and the hawks in the trade camp.We will hear more until the next meeting of the G20," said Sim Moh Siong, strategist on exchange at the Bank of Singapore.
Most analysts predict that the dollar will remain well supported over the coming months, thanks to the Federal Reserve's willingness to continue to gradually raise interest rates. A fourth increase for this year is expected next month, supported by a robust economy and increasing wage pressures.
The yen was well placed in Asian trade, changing hands at 113.34, while the Brexit turmoil had attracted investors to the Japanese currency. The yen hit a six-week low at 114.20 on Monday before reversing the price.
The Australian dollar lost 0.14% to 0.7272 dollar on Friday. The Australian dollar gained 0.58% in the previous trading session, thanks to stronger than expected data on jobs.
