Sterling heads for longest run of gains since Brexit vote

Sterling headed for its longest run of gains since before the Brexit vote as a flurry of news offered relief for the currency.The move came ahead of what could be a volatile week for the financial markets, with forecasts of significant swings in equity markets after the US presidential election.

While the rise in sterling may offer some temporary relief for Irish exporters, analysts are divided on the short-term prospects for the UK currency and worried that in the months ahead it could fall further.

Next week the focus will turn to the US, with equity markets on edge ahead of the result. On Friday the Standard & Poor’s index extended its longest losing streak in more than three decades, as data bolstered speculation interest rates will rise before year-end and investors remained wary before the looming election.

However, strong US jobs figures, and signs of strong wage growth gave the US markets some support. US non-farm payrolls increased by 161,000 jobs last month amid gains in construction, healthcare and professional and business services, the Labour Department said on Friday. The solid labour market fundamentals were also underscored by revisions to August and September data, which showed 44,000 more jobs created than previously reported. The year-on-year gain in wages last month rose to 2.8 per cent, the largest in more than seven years.

An analysis by Credit Suisse said that shares could swing widely, depending on the result of the election, potentially rising or falling by more than 3 per cent as the result comes clear. Stockmarkets have reacted nervously to signs that the presidential race is tightening and to uncertainties about what a Trump presidency would mean.

Politics dominate market sentiment

“In case of a Trump win, we envision a violent flight to quality,” Barclays Plc said in a report, meaning money would move out of equities and into safe havens such as government bonds, gold and cash funds.

A Trump victory is also likely to put pressure on the US dollar, market analysts said.

With politics dominating market sentiment, the move to Brexit is also driving investors, particularly in currency markets. In afternoon trading on Friday, sterling was quoted as high as 88.6p against the euro, offering some relief for Irish exporters hit by the fall of the UK currency. It had eased by the close of trading to around 88.9p, still up 0.2 per cent on the day.

Sterling has climbed on speculation a UK high court ruling will delay or soften the terms of the country’s exit from the EU, and it received a further boost when the Bank of England said it was no longer expecting to cut interest rates again this year. The bank also raised its forecasts for both consumer-price increases and growth.

Economic data that beat analyst forecasts helped lend support to the pound. A report on Thursday showed the UK services industry expanded for a third month in October, emphasising the economy’s resilience since the June 23rd Brexit vote. Still, sterling’s rally this week barely dented its 16 per cent slide since the referendum.

European stock markets fell on Friday, with London’s FTSE index dropping to a seven-week low as European markets endured a bout of US election jitters in the run-up to Tuesday’s poll. The FTSE 100 index sank deeper into the red, closing down 97.25 points to 6,693.26. Germany’s Dax fell by 0.7 per cent and the Cac 40 in France dropped by 0.8 per cent, as market concern over the US presidential election spread across Europe. In Dublin the Iseq index was broadly flat.

– Additional reporting Bloomberg/Reuters