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Euro hitched to Pound and caught in breasts by Brexit cliffhanger, Banking & Finance

May 12, 2018 – 5:50


They are divorced but for traders they are almost as close as ever.

Britain's torture deal with the European Union has pushed the pound and the euro in synchronization with the dollar, as investors' price risks on both sides of the channel. The 40-day correlation between the two currency pairs has climbed back at 0.80 and is approaching the aftermath crisis as the daily drama of negotiations also seizes investors on the continent.

"It also affects the euro, but apparently not as much as sterling," said Andreas Koenig, head of global currencies at Amundi Asset Management, with a total of 1.48 trillion euros. "It creates uncertainties and it affects Europe because there is one side of the negotiations." Certainly, changes in risk appetite, mid-term and monetary forces have moved the dollar against big comrades over the past six weeks. However, the euro's link with the pound could still continue when the negotiations went to the management.

In the worst case that a Brexit deal is rejected by British legislators and the position between Rome and Brussels is intensifying, the euro must "hit the dollar" in agreement with sterling thanks to the political blow, according to Steve Barrow, Head of Currency Strategy at Standard Bank in London .

Mr Koenig has haussea positions on the pound, betting negotiator will eventually create an agreement that releases profits, but says there may be plenty of adversities on the way.

At present, an agreement that can both pass Britain's parliament and find EU approval continues to be modest with Northern Ireland's Democratic Union Party, which Prime Minister Theresa May relies on for support and says it will not regain its current proposal.

The hard stance of the EU seems at least deterrent to other willing defects, which should help to limit the damage to the European Union's unity and the euro, according to Esther Reichelt, a Commerzbank currency strategist.

"I would assume that the EU proved to be sufficiently stubborn and resilient to limit fear of Britain being able to show an example for other EU countries, so I would actually be surprised if an agreement would be a game exchange for the euro," she said . BLOOMBERG

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