Pound benefits from Brexit optimism

On Monday, U.S. and European stocks turned negative amid pessimistic sentiment in the markets. According to some reports, China is now not optimistic about reaching a trade deal with the U.S.

Despite earlier comment made by Larry Kudlow, the White House economic adviser, that the two nations are close to some sort of a deal, markets are still waiting for the official announcement. The assurance had sent U.S. shares to a record close on Friday.

Markets are getting feverishly anxious with each passing day as Dec. 15 is the date when President Trump’s next tariff hike is to come into effect unless countered by a trade deal.

China’s bonds rallied and the yuan slipped after the PBOC lowered rates on short-term loans, the 7-day repo agreements to 2.5% from 2.55%, and injected $26bn into its financial system in a bid to improve confidence in the world’s second largest economy.

The British pound rose to a six-month high against the Euro after UK PM Boris Johnson’s support solidified; Mr Johnson said Tory candidates have all signed a pledge to back his deal if he is reelected in December.

At the same time, polls are indicating that the Labor party is struggling to win support, and observers are anticipating a Conservative win in December. Although this is predicted to be a better outcome, downside pressure will continue to affect the pound, given post-Brexit growth uncertainties, which will also limit the BoE’s ability to normalize rates.