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Sterling edges higher on UK no-deal Brexit preparations as FTSE 100 sheds gains

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WINCHESTER, UNITED KINGDOM - JULY 18: Bank of England Governor Mark Carney poses with one of the central bank's new ten pound notes, featuring British author Jane Austen, during its unveiling at Winchester Cathedral on July 18, 2017 in Winchester, England. Two hundred years after Jane Austen's death, Britain is celebrating one of its best-loved authors, who combined romance with biting social commentary that still speaks to fans around the world. Austen is buried in the cathedral in Winchester, where she died. (Photo by Chris J Ratcliffe-Pool/Getty Images)

The pound rose 0.35 per cent against the dollar as the greenback slipped again today after falling on yesterday’s comments from Federal Reserve chair Jerome Powell.

Powell said “trade tensions and concerns about global growth” have weighed on the US’ economic outlook, making a rate cut more likely.

Read more: Mark Carney is ‘too busy’ to think about the IMF role – for now

Stock markets responded by soaring as investors predicted measures to try and kickstart the economy by slashing interest rates at the end of July.

FTSE 100 was trading as high as 7,558 points this morning, while the Cac rose 0.15 per cent to 5,575 and the Dax was flat at 12,371.

However, the FTSE 100 sank 0.35 per cent this afternoon to fall to 7,505 points as sterling edged up to 1.255 against the dollar.

That followed the Bank of England’s warning that a no-deal Brexit risk is increasing.

Governor Mark Carney said that such a scenario posed “material risks of economic disruption”.

But he added that UK banks can withstand the UK crashing out of the EU without a deal, sending the pound higher.

Sporeadex financial analyst Connor Campbell said sterling had “seemingly taking heart from the Bank of England’s claim” that the UK economy had improved preparations for such an eventuality.

It also rose to 1.114 against the euro too, piling pressure on the internationally-exposed FTSE 100.

“These gains served to prevent the FTSE from joining in with the gains seen elsewhere,” Campbell added.

Edward Moya, senior market analyst at Oanda, told City A.M: “While sterling has been hampered on Brexit uncertainty, with no-deal risks surging, the downward move has been overdone and the focus is likely to remain on the Fed’s easing over the coming weeks.”

The euro fell on news that the European Central Bank favours an interest rate cut if soft economic data in the Eurozone does not improve.

However, Moya told City A.M: ” The ECB is likely to cut in September, but it will pale in comparison to what the Fed will be doing.”

Read more: World markets rally on hopes of US interest rate cut

“Over the next 12 months, markets could see the Fed delivering 100 basis points in rate cuts while the ECB may only deliver half of that total,” he added.