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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden and Nick Fletcher

Pound falls back as Davis says government cannot outline Brexit aims in detail – as it happened

Dark clouds above London’s financial district, Canary Wharf.
Dark clouds above London’s financial district, Canary Wharf. Photograph: Andy Rain/EPA

Closing post

After another volatile day, the pound now seems to have settled around the $1.22 mark.

That’s a cent higher than last night, but still close to the record low struck after Tuesday’s rout.

The City has a lot to digest -- from the government’s refusal to hold a vote on triggering article 50 to warnings that City jobs could move to New York if the UK leaves the single market.

So here’s our latest news story on the financial implications of Brexit:

A brief rally in the pound was quickly reversed on Wednesday after the government refused to make tariff-free access to the European Union’s single market a red line in Brexit negotiations with Brussels.

Investors sold the pound after Brexit minister David Davis told MPs it was “not black or white” whether the UK would stay in the single market.

Sterling fell two cents to $1.21 on the currency markets in afternoon trading, reversing a jump to $1.23 overnight that followed Theresa May’s concession for parliament to hold a debate on the government’s stance on talks with the EU.

The U-turn in agreeing to a debate initially lifted markets, but the refusal of ministers to clarify the government’s position provoked a swift reversal in sentiment and the pound ended the day at $1.22.

The pound has tumbled since last week when in her party conference speech May appeared to put taking control over immigration above retaining access to the single market on the current tariff-free terms.

According to Bank of England figures, which compare the pound to a basket of major currencies, the UK’s currency has fallen to its lowest level since the 1970s, when records began.

The figures show that the value of sterling has fallen to below the levels seen in the aftermath of the 2008 banking crisis and the slump in the pound in 1992 that followed “Black Wednesday” and the UK’s exit from the European Union exchange rate mechanism.

Here’s the full story:

I’ll be back tomorrow (unless sterling has a major wipeout tonight, in which case I’ll fire this blog up again,..) GW

The FT have an interesting Brexit story tonight.

They’re reporting that Brussels wants the UK to stump up €20bn in ‘divorce payments’, to cover commitments in the EU budget - from pension contributions to Britain’s share of large projects.

That could spark a major row that could make it harder to agree an amicable split.....

The story is here (behind the FT paywall), and here’s the top line:

Updated

Unilever and Tesco aren’t the only companies struggling to come to terms with the slump in sterling.

Other businesses chiefs, including the boss of BT, have also warned that prices are going to rise as firms pass on higher import costs to consumers.

The Press Association also noticed that the pound shed its early gains after David Davis began outlining the government’s Brexit plans (in rather limited detail).

My colleague John Harris can see the big picture:

The clash between Tesco and Unilever over the weak pound is causing a stir on social media:

And one for foreign exchange traders...

Updated

The pound is clinging onto today’s modest gains, after the minutes of the last meeting of America’s central bank policymakers was released.

The minutes show that “several members” of the Federal Reserve favour raising US interest rates “relatively soon”, if the economy keeps performing as expected.

However, others favoured hanging fire a bit longer, to see how inflation and employment play out.

So, nothing too sensational.

The prospect of a rate hike in December is helping the dollar to strengthen, but the pound is still up around one cent at $1.2222.

Updated

Tesco pulls some Unilever products in weak pound price row

As if Britain didn’t have enough to worry about, the slump in the pound means you may not be able to pick up a jar of Marmite from Tesco.

A row had broken out between the supermarket chain and consumer goods giant Unilever, over who should shoulder the impact of the weaker sterling, which has pushed up the cost of raw materials.

My colleague Sarah Butler explains:

Tesco is running short of stocks of a range of household brands from Marmite to Comfort fabric conditioner after a row with its major supplier Unilever.

It is understood that Unilever has halted deliveries to Tesco after a dispute over price. The food, toiletries and household goods supplier has been attempting to raise prices across a wide range of goods by about 10%, blaming the falling value of the pound against the euro and the dollar.

Some products are now unavailable on Tesco’s website, and in short supply in the aisles, as Sarah adds:

In different areas of the country a number of Unilever brands have sold out. They include Persil, Surf, Dove, Comfort, Ben & Jerry’s ice cream, Elmlea, Colman’s, Helmann’s, Marmite, Knorr, Bertolli, Flora, Comfort and Pot Noodle.

Here’s the full story:

Updated

Wall Street bank Goldman Sachs has created a stir, by predicting that sterling could shed another 7%.

The pound has already dropped by around 17% since the EU referendum; Goldman points out that 25% slumps aren’t terribly uncommon....

A reminder, the UK parliament debate on Brexit is being covered in our politics live blog here:

Meanwhile the pound has edged up a little, and is now 0.9% better at $1.2228.

European markets close lower

Ahead of the minutes from the latest US Federal Reserve meeting, and as the pound recovers slightly but remains close to its record lows, European markets have ended the day lower. Chris Beauchamp, chief market analyst at IG, said:

A small recovery in US markets at the beginning of the session is already beginning to fizzle out, while the US dollar is doing well ahead of Fed minutes, on the expectation that the account of the most recent meeting will show a committee still keen to raise rates. As has been the case for the week thus far, attention has focused mainly on sterling, thanks to the absence of heavy-hitting UK data. The pound continues to lose ground, testing the water below $1.22 again, although indications that the UK government may have to navigate Parliament before activating Article 50 have helped to stem downside in cable today.

In a quiet session the main event, Fed minutes, is still to come, and could yet reverse the weakness in equities and the relatively sparky performance of the dollar. Of particular note this afternoon is a possible breakout in dollar/yen which is finally trying to move meaningfully above Y104. 2016 has been, by and large, a year of yen strength, but it will be music to Shinzo Abe’s ears if the Japanese currency finally begins to fall. After all, if the UK can do it, why not Japan?

On the European markets, the final scores showed:

  • The FTSE 100 finished down 46.87 points or 0.66% at 7024.01
  • Germany’s Dax dipped 0.51% to 10,523.07
  • France’s Cac closed down 0.44% at 4452.24
  • Italy’s FTSE MIB fell 0.02% to 16,470.28
  • Spain’s Ibex ended down 0.08% at 8686.5
  • In Greece, the Athens market added 0.16% to 586.24

On Wall Street, the Dow Jones Industrial Average is currently up 31 points or l0.18%.

Here’s our story on the debate in parliament, with MPs warning the government that the current uncertainty is hitting businesses and markets. Rowena Mason reports:

A string of Tory and Labour MPs have warned David Davis, the Brexit secretary, that businesses and financial markets are being spooked by his lack of a plan for leaving the EU.

Claire Perry, a Conservative former minister, said on Wednesday she was extremely concerned about the state of the pound and accused him of putting “narrow ideology” ahead of the national interest, while Ken Clarke, the former chancellor, said no foreign companies would invest until there was more clarity about the UK’s future relationship with the outside world.

Chris Philp, a Tory backbencher, urged the Brexit secretary to give away more details, saying there was a “danger some [businesses] may take decisions in the next two or three months” to pre-emptively scale back investment and move jobs.

Others to raise concerns included the serial rebel Anna Soubry, a former business minister who attended cabinet, who demanded a yes or no answer as to whether the UK would be in the single market.

The Brexit secretary said it was “not black or white” whether the UK would stay in the single market and parliament could not expect to be given every detail of the government’s plans for leaving.

Davis said the government had a mandate to get the best possible deal but insisted he could go no further than talking about overarching aims because revealing the UK’s top priority would prove “extremely expensive”.

The full story is here:

The pound is back below $1.22 as the lift from the government’s promise of a Brexit debate fades, and the US currency strengthens on the growing expectation of a rate rise from the Federal Reserve before the end of the year.

Sterling is currently at $1.2193, up 0.6% on the day having earlier climbed as high as $1.2325. Against the euro the pound is up 1% at €1.1075.

A Treasury official has sought to ease fears about the City’s future in a post-Brexit world. Reuters reports:

Britain’s financial services sector will be a “high priority” for the government when it negotiates the terms of Britain’s new relationship with the European Union, the most senior official in the country’s finance ministry said.

“The UK economy and UK exports are quite services-heavy, and financial services are an important part of that. So I think we will be very keen indeed to make sure the final agreement gives the proper place to financial services within that,” Tom Scholar, permanent secretary at the Treasury said.

Tom Scholar
Tom Scholar Photograph: None

“So it will have a high priority in our discussions,” he said in a hearing before the lower house of parliament’s Treasury Committee on Wednesday.

Top bankers warned on Tuesday they could start moving staff abroad as early as next year if there is no clarity on Britain’s access to the European single market once it leaves the EU.

On the pound’s moves today, Connor Campbell at Spreadex said:

Though not as perky as at lunch time the pound has nevertheless held onto its earlier gains this afternoon.

In the face of US investors keen to buy the dollar as Donald Trump’s presidential campaign disintegrates, and a speech from Brexit minister David Davis that erred on the ‘hard’ side of things, the pound managed to rise 0.7% against the greenback and 0.8% against the euro this Wednesday. A slight comedown from its morning highs, then, but nevertheless the kind of respite sterling was crying out for by the end of yesterday’s trading.

Of course Brexit is not the only thing influencing currencies at the moment, the dollar in particular. The greenback is strengthening on the prospect of a possible US interest rate rise this year, with Hillary Clinton’s lead in the US presidential race deemed to be something which could allow the Fed to move.

The minutes from the last Federal Reserve meeting, which left rates unchanged, will therefore be scrutinised for clues as to what the Fed members are thinking. Michael Hewson, chief market analyst at CMC Markets UK, said:

The US dollar has continued to be the primary beneficiary of this uncertainty hitting its highest levels since March, as markets look to the potential for a rate rise in December ahead of the publication later today of the latest FOMC minutes, where we will get further insight into the level of the dissent about last month’s decision to hold rates steady.

We know the doves were able to win the argument this time, however we don’t know how wide the divisions were and whether any other members felt compelled to go with the dissenters, but harboured enough doubts to hold back and wait a little bit longer. If the minutes point to any waverers on the dove front then the US dollar could well take another leg higher.

Some choice words from ex-chancellor Kenneth Clarke:

Time for some charts.

This one shows how the pound has suffered a volatile few days – starting with Friday’s flash crash, and continuing with last night’s rout.

The pound vs the US dollar
The pound vs the US dollar over the last week Photograph: Thomson Reuters

And this one, from fastFT, shows how the pound hit an all-time low against a basket of currencies last night (the data only goes back to mid-1880s).

Sterling through the ages
Sterling through the ages Photograph: FastFT

The FT’s Mehreen Khan says:

According to a trade-weighted index measuring sterling against a basket of its trading peers, the pound has now slumped to its lowest on record, stretching beyond the introduction of free-floating exchange rates in the 1970s, back to the mid-1800s according to data compiled by the Bank of England.

The pound’s effective exchange rate, which is weighted to reflect the UK’s trade flows, hit a low of 73.38 on Tuesday – weaker than the depths hit during the financial crisis, Britain’s ejection from the European Rate Mechanism in 1992, and its decision to leave the Gold Standard in the 1930s.

Pound falls back as government outlines Brexit strategy

The pound lurched back below $1.22 as the government outlined its Brexit strategy -- although David Davis didn’t shed much new light on the situation.

Secretary of state Davis promised to get the best possible terms for the UK as it leaves the EU, but refused to say whether, for example, it had ruled out retaining membership of the single market.

Instead, Davis said he could only outline the government’s “overarching aims”, saying:

“We have been pretty clear on the overarching aims. Not the detailed aims. We’re not even at the point that that’s possible.

Davis insists this is sensible, as the government isn’t planning to trigger article 50 for several months. But this lack of detail could disappoint the financial markets as they try to get a grip on Brexit.

So, the pound is now only up 0.6% against the US today, meaning it’s close to the all-time record low hit yesterday.

Remember, the deputy governor of the Bank of England has already warned today that markets don’t cope well with political uncertainty....

Christopher Vecchio of DailyFX.com reckons that investors are fretting about Brexit again, after a brief respite this morning...

British government debt is also dropping in value, hitting its weakest level since the end of June.

The yield (or interest rate) on 10-year gilts has risen to 1.06%, from 0.98% last night.

Yields rise when prices fall, so this means investors are selling gilts, pushing up the cost of servicing Britain’s national debt and financing the deficit.

Updated

Another day, another bout of sterling volatility....

Eek, the pound is now shedding some of its earlier surge. It’s now up just one cent, at $1.22, having hit $1.23 earlier.

Investors may be watching parliament, where David Davis, secretary of state for exiting the EU, has insisted no party will get a veto on Brexit.

A fascinating debate is underway in the House of Commons now, as MPs discuss how they will scrutinise Brexit.

Keir Starmer, Labour’s shadow secretary for exiting the EU, is arguing that parliament must get a vote on the terms of leaving the European Union.

Other members are agreeing, including former attorney general (and Conservative MP) Dominic Grieve:

Andrew Sparrow is live-blogging the whole thing:

We know that the pound hit a record low last night, but which way might it move next?

Kallum Pickering, senior UK economist at German bank Berenberg, suggests sterling could suffer fresh losses if Brexit negotiations get off on the wrong foot.

The latest leg down for sterling reflects the shift in market expectations towards a hard Brexit following recent comments from Prime Minister May and her cabinet.

Has sterling found a bottom? That depends on how Brexit negotiations play out. If the UK and EU clash noisily in the forthcoming negotiations or if the UK goes for a ’hard Brexit’, a risk we cannot rule out, sterling is likely to continue to sink further.

But...

If the UK and the EU agree to part ways in an amicable manner, and if the UK secures good terms for post-Brexit trade, sterling is likely to rebound along with the UK economic outlook

Confidence among Britain’s food industry has been rattled since the Brexit vote, a new survey has found.

Although the weak pound should help exports (making Mr Kipling cakes, Marmite and Scottish shortbread more affordable abroad), manufacturers are worried that they could face new tariffs once Britain leaves the EU.

The EU referendum vote has forced international investors to get up to speed on the intricacies of the UK parliament, the EU single market, the untested article 50, and scrutinise every Brexit-related headline out of London and Brussels.

The Financial Times columnist Janan Ganesh suggests markets should calm down....

An important point:

The pound has kicked on a little, back towards $1.23, after prime minister Theresa May told MPs she will aim for “maximum access” to the EU single market.

May says she is determined to achieve the “right deal for the UK.....operating in and trading with” the European market.

Labour leader Jeremy Corbyn, though, criticised the government for lacking a clear Brexit plan.

Our Politics Live blog has full coverage of Prime Minister’s Questions:

This chart confirms that the pound plunged to a record low last night:

Sterling hit lowest ever level yesterday

Newsflash: Yesterday’s brutal selloff drove the pound down to its lowest ever level against a basket of other currencies.

New data from the Bank of England shows that trade-weighted sterling crashed through its previous seven-year low during last night’s trading, to depths not seen before.

This index values the pound against a group of other currencies including the US dollar, yen, and euro.

And it hit 73.383, on the Bank’s index, tipping through the 73.495 plumbed in December 2008 as Britain crashed into recession and several banks were bailed out.

This morning’s rally means the pound has now pulled back from this nadir, but it’s still a serious warning about the impact that Brexit has had on the pound.

It’s still close to a near-31 year low against the US dollar, and close to a six-year low against the euro today.

Mike Bird of the Wall Street Journal has a good take:

The Bank of England’s broad effective exchange rate index for the pound shows that the currency is now worth less than it was at the height of the 2008-09 financial crisis, or in the aftermath of Black Wednesday, when sterling left the European Exchange Rate Mechanism.

Given the pound has declined from its once strong position throughout the last century, the current level means it has never traded lower against its trading partners.

Reuters has more details too:

Trade-weighted sterling index hits record low on Tuesday- BoE

Updated

While I was watching Jon Cunliffe, Lloyds Banking Group announced it is cutting more than 1,300 jobs.

Sir Jon Cunliffe’s session at the House of Lords has now ended.

Here are the key points from the Bank of England deputy governor:

Q: What are the prospects of the UK continuing to have influence over the regulation of financial services in the EU, and globally, after Brexit?

Sir Jon Cunliffe says the UK won’t have influence from inside on the making of EU regulation, once it has left.

We will necessarily lose influence, if you’re not an EU member you can’t be inside the machinery making EU law.

But he expects the EU to maintain its commitment to international standards.

I hope, presume, and will devote considerable effort to ensure Britain still influence those global standards, Cunliffe adds.

Q: Would the Bank of England ever ‘mark the card’ of ministers over Brexit?

Cunliffe says the Bank doesn’t have that power, but it has a responsibility to monitor the UK financial system and make its views known.

Onto the Brexit buzzword - uncertainty.

Q: How will the Bank respond if politicians make pronouncements in the run-up to Brexit?

Cunliffe repeats that markets have a general problem with political uncertainty, and there will be a lot of political noise around Brexit.

The Bank’s Financial Policy Committee is assessing the financial stability implications of Brexit, and will report on them through its regular publications, in the usual way. Ditto for the Monetary Policy Committee.

Q: Is there a contradiction that banks want certainty, but they also want Brexit resolved quickly?

Cunliffe says that:

No matter how it’s arranged, we just need a smooth and orderly progression from where we are to where we’re going, wherever that is, so firms can plan and execute those plans.

There are lots of ways we could proceed, but they are political choices.

Q: But take Nissan. They won’t wait three years before taking an investment decision....

That’s true of financial firms as well, Cunliffe says. They have have shareholders... and if there’s not certainty they may need to execute plans and prepare for the future anyway.

You could reach a tipping point, and go ahead before you know the full details of Brexit.

Cunliffe warns of problems if London loses euro clearing

Today’s hearing
Today’s hearing Photograph: Parliament Live

Q: Is there a serious risk that the euro clearing market could move out of London?

Sir Jon Cunliffe says he’s spent most of his career on this subject, and apologies for giving a long answer (don’t worry, Sir Jon, this stuff matters....)

He says it’s unusual to see heads of state talking about something as technical as ‘euro clearing’. So there’s a political significance to this, which may determine the outcome.

[Background: French president Francois Hollande said in June that the UK won’t be able to keep its euro clearing business after Brexit].

But on the technical issue -- euro clearing relates to the process by which banks clear complex derivative contracts priced in euros.

He explains that after the 2008 financial crisis, regulators insisted that derivatives contracts are cleared centrally, so that they could see the state of play, and if any firms are getting in trouble.

You avoid what happened in the financial crisis, where as the prices of assets move quickly, counter-parties make margin calls on other counter-parties, and the situation deteriorates quickly.

Cunliffe says he was at the G20 meeting in Pittsburg when regulators decided to do this, and it was the right thing.

But it needs central clearing, so you can net the risks.

In other words, financial firms can ‘net’ off their margin calls, balancing contracts where are up, or down, and only post the balance. That reduces the stress in the system, meaning firms won’t have to post as much capital or buy as much insurance.

Cunliffe then, politely, rubbishes the idea that derivative contracts need to be cleared in the jurisdiction of the currency that they are issued in.

Currently, London clears contracts priced in euros, dollars, and yen (for example).

It you make multi-currency infrastructure impossible, then the cost of clearing derivatives will go up.

And fragmenting the system could create financial stability risks, if the current set-up in London is replaced by several smaller operations.

He says:

I can understand the politics around this, but we’re taking technically about multi-currency infrastructure.

If we’re talking about going to a world where you have to clear in the jurisdiction of issue, then the costs are going to go up in a pretty big way.

Q: So are you saying that it’s unlikely that euro clearing will move out of London to the EU, if it was a rational decision?

I think the system works well now, Cunliffe replies diplomatically.

Updated

Cunliffe: City jobs could move to New York after Brexit

Wall Street, in New York.
Wall Street, in New York. Photograph: Mark Lennihan/AP

City jobs are more likely to move to New York than to Europe, if Britain loses access to the single market, Sir Jon Cunliffe argues.

The Bank of England’s deputy governor tells the House of Lords committee that it’s not plausible that London banks would move their operations to other European capitals.

The current system is simply too complex, and reliant on other industries, so can’t simply be copied.:

I can’t see London’s financial ecosystem being replicated elsewhere in the foreseeable future, in one place in the European Union.

It takes an awful lot of time, human capital, it’s based around the interaction of financial services and other services.

The idea that this ecosystem can be transplanted to Europe in the foreseeable future is highly unlikely.

Cunliffe then cites research showing that a quarter of the value of a ‘transaction chain’ comes from other financial firms who take part in the transaction, and another quarter comes from non-financial companies such as lawyer.

You need those things to be able to work together seamlessly.

And in New York, that already happens. So some services could shift over the Atlantic, Cunliffe suggests.

Cunliffe: Brexit could force up cost of finance

Cunliffe warns that both sides could lose out if Britain’s financial services sector loses the right to offer services across the EU, as it can today.

He says:

If barriers are put up between London and Europe, forcing banks to hold more capital...then that will put up the cost of finance, and financial services , on both sides of the Channel.

Q: Is there scope for an early deal that would allow the City to keep these ‘financial passports’, or some similar service?

Cunliffe says there are currently 350,000 passports in operation (I think he means in the City) and most are outbound from the UK (for example, a London firm could offer insurance across the EU).

He cites a recent report that found £50bn to £60bn of UK revenue was related to EU services, some of which would be lost without passporting rights.

So it’s a significant issue.

Cunliffe repeats that those passports can’t continue if Britain isn’t in the single market, but the system could potentially be replicated.

Updated

The committee ask Cunliffe for his views on the terms of Brexit, and whether a ‘bespoke’ deal would help the financial services industry.

Cunliffe says that the single market currently allows UK financial firms to offer services ‘relatively frictionlessly’ across the EU, by using the passport.

That will be lost, if Britain isn’t a member of the single market, and sharing laws with other EU countries.

If we’re not in the single market, that means the current way that that relatively frictionless interactions take place won’t continue.

That doesn’t mean it cannot continue, but it will need arranging in a new way.

Currently, retail banking services don’t rely on the EU single market, but ‘wholesale services’ do.

So any ‘bespoke deal’ to protect the City would have to understand how those passporting permissions are used, and by who.

Updated

Cunliffe: Markets struggle to cope with political uncertainty

Q: What’s the impact of the plunge in sterling?

Cunliffe: There’s no numerical relationship between the fall in a currency and a rise in inflation.

The important issue is why the exchange rate is changing. If it’s moving because of uncertainty over the UK’s future trading relationship with Europe, that could suggest that economic demand could be weakening.

But he won’t give a more detailed answer...

Q: Has sterling over-reacted, or is it the right response?

Cunliffe won’t give a view on whether the markets are right, or wrong. They are processing news about the outcome.

Then, he warns that global investors are disconcerted by Brexit, because it is a political issue which can’t be easily fitted into their economic models.

Markets find political uncertainty very difficult....And the UK’s exit from the European Union will be the product of political processes here and in other countries.

Sir Jon Cunliffe says there is “great uncertainty” over the extent to which companies will leave the City, because of Britain’s exit from the EU.

Recent economic data has been more encouraging than feared before the referendum. But uncertainty over the UK’s future trade links will weigh on business investment, he cautions.

Cunliffe says he’s not a great fan of terms like ‘hard’ or ‘soft’ Brexit - you need to dig down into the details to see exactly what it means for, say, financial service firms in London (who can offer services across the EU today).

And it’s important that Brexit doesn’t distract company management from wider financial stability issues.

Cunliffe also says it’s important that companies have enough time to adjust to the UK’s new relationship with the EU.

BoE's Cunliffe: Brexit could cause more market volatility

Sir Jon Cunliffe
Sir Jon Cunliffe Photograph: Parliament Live

Sir Jon Cunliffe, deputy governor of the Bank of England, is testifying to the House of Lords EU Financial Affairs Sub-Committee, about Brexit’s impact to financial services.

It’s being streamed live here.

Cunliffe is explaining about how the Brexit vote was a shock, but one which the financial markets absorbed without disaster.

The financial system is more robust to the shocks from market news, and the like. But there is still great uncertainty over the timing of Britain’s exit from the EU, and the details, Cunliffe continues.

And the deputy governor then warns that we could see more more ‘market induced financial events’ as Brexit negotiations get underway.

And he cites last week’s sterling ‘Flash Crash’ as an example, adding.

I wouldn’t rule out.... as more news comes in, that there is potentially stress in markets.

Q: So are you making more preparations ready for article 50 to be triggered in March 2017?

Cunliffe says the BoE did a lot of contingency work before the referendum, and that work is still being used.

Of course, we’re in dialogue with other central banks, he adds.

Sterling just had a little wobble, after the newswires flashed up that Theresa May’s spokeswoman has said MPs won’t get a vote on whether to trigger article 50.

That’s not a surprise, of course. But it shows how edgy the markets are right now.

The pound is now hovering around $1.227, up 1.5 cents today.

City traders are hoping that today’s Opposition Day debate about Brexit scrutiny will provide some colour about the government’s strategy.

Peter O’Flanagan, head of trading at Clear Treasury, says the markets are currently pricing in the “worst case scenario” for Brexit.

The pound is still the worst performing currency across the globe this year and liquidity in the pound remains weak, but any talk around Brexit that might be deemed slightly positive provides scope for a relief rally.

Full story: Theresa May's debate u-turn

Here’s our latest news story, explaining how Theresa May has agreed to allow MPs “full and transparent” scrutiny of the process to exit the European Union.

It’s by Rowena Mason and Heather Stewart, who explain why the PM changed course (sending the pound leaping overnight).

May had been facing her first government defeat over the motion on Wednesday, as a number of Conservatives indicated they were prepared to vote with Labour to demand greater public debate over the Brexit negotiating strategy.

The concession does not go as far as specifying that MPs should get a formal vote on article 50 or any Brexit deal and slightly amends Labour’s version to say the government’s negotiating position must not be undermined.

However, it does mean there will have to be a substantive parliamentary debate on No 10’s strategy at a later date before the UK embarks on Brexit. One Tory MP said this means the Commons will have to broadly approve the negotiating position before article 50 is invoked.

Emily Thornberry, the shadow foreign secretary, said it was a significant U-turn and Labour would force the government to be accountable over Brexit.

She told BBC Radio 4’s Today programme that the opposition would not let ministers “go into a locked room and come out with some plan that they want to keep secret”.

Updated

Morgan Stanley: Pound could suffer further losses

Morgan Stanley’s head of currency strategy, Hans Redeker, welcomes the news that Theresa May will allow a debate on Brexit strategy.

He says:

After weeks of tough rhetoric pushing sterling into a trading environment closer to an emerging market currency, the government may aim to stabilise markets, with its rhetoric and suggestions now possibly shifting in tone,”

However, Redeker also questions whether MPs will really be given proper scrutiny.

There is a fine line to walk as May’s Conservative Party wants a clean split from Europe.

In addition, giving in too much, even before Article 50 negotiations have started,shifts the negotiation advantage towards the EU. Hence, the pound’s rebound should be limited and followed by a decline.”

Despite jumping by almost two cents this morning, the pound is still worth less than first thing yesterday morning.

That’s because sterling was duffed up in the foreign exchange markets last night, plummeting through the $1.21 mark.

The pound then soared back overnight, following reports that Theresa May would allow MPs more Brexit scrutiny.

Mike Bird of the Wall Street Journal has the details:

Updated

Despite today’s rally, the pound is still around 5% weaker than before the Conservative Party conference, where Theresa May promised to trigger article 50 within six months.

The recent slide in sterling, and the alarming ‘flash crash’ last Friday, must have caused some concern in Downing Street (even though a weaker pound should help the economy rebalance).

The Financial Times reports today that some senior Tories have admitted privately that the weak pound could create serious political headaches.

Mrs May said last week that the fundamentals in the British economy were strong and that the economy had grown more strongly than many had expected after the June 23 Brexit vote. “We see sterling moving in different ways at different times,” she said.

But some Tory MPs warn that “imported” inflation will erode living standards and undermine Mrs May’s attempts to help the “ordinary working-class” Britons who saw the Brexit vote as a cry for help.

The rising cost of fuel, food and foreign holidays are already being felt by families described by Mrs May as those who are “just getting by”. Labour has called for pro-Brexit ministers to apologise.

This chart, from Capital Economics, suggests the pound has been ‘oversold’ recently, compared to what you’d expect based on likely interest rate moves.

Today’s sterling rally may not last, according to Neil Wilson, analyst at City firm ETX Capital.

He reckons the pound will suffer more volatility, as the political drama around Brexit continues to play out.

Theresa May’s decision last night to allow the House of Commons a debate on the government’s Brexit plans before triggering Article 50 seems to have allayed some of the concerns about a ‘hard Brexit’ that had dominated since her speech at the Conservative Party conference. Bank of England policymakers had also appeared to talk the currency lower.

But if traders think the mood is turning bullish for the pound, they’re mistaken. The bears are still very much in control and this relief rally looks like a dead cat bounce

London’s stock market has dipped in early trading, sending the FTSE 100 index down by 21 points (or -0.3%) to 7049.

That’s partly due to this morning’s sterling rally. A stronger pound isn’t great news for internationally-focused companies, who earn most of their earnings in foreign currencies.

Oh in other words:

The pound is also enjoying a good morning against the euro, up over 1% at €1.108.

Updated

Asa Bennett of the Daily Telegraph has a good explanation of how MPs are being allowed more scrutiny of the government’s Brexit plans.

This is from his morning email:

The Government may not want to give a “running commentary” on its Brexit strategy, but MPs are very keen for Parliament to have its say. Some Tory MPs are among them, with Stephen Phillips warning ministers that they would be acting like a “tyranny” to negotiate Brexit without consulting Parliament. “That really is a democratic deficit,” writes Philip Johnston in today’s paper. “Actually, let’s not mince words. That’s dictatorship.” Brexit means Brexit, James Kirkup adds, “but Parliament is Parliament”.

Labour is hoping to exploit this concern by pushing an Opposition Day motion today calling for Parliament to be able to scrutinise the government’s Brexit plan before Article 50 is triggered, and offering 170 questions for ministers to answer. It looks like the Opposition has scored a direct hit, as the Government moved last night to table a surprise amendment offering MPs extra Parliamentary scrutiny of the Brexit process in order to prevent Tory MPs from rebelling, which Labour has trumpeted as “one hell of a climbdown”.

Paul Donovan of Swiss bank UBS confirms that this ‘surprise amendment’ has help the pound to rally.

He writes:

The UK government indicated that Parliament may have a say on its negotiation stance ahead of the exit discussions with the EU.

The change in the nuance of the government’s position has halted the seemingly inexorable decline of sterling. Markets are once again the idle playthings of politicians’ whims.

Updated

Pound bounces back as May agrees to Brexit debate

The pound is rallying hard this morning, following signs that the government will allow MPs more scrutiny of its plans to leave the European Union.

Sterling has gained more than 1.5 cents this morning, popping back over the $1.23 mark as traders give the pound new vote of confidence.

Last night, it fell as low as $1.208, on fears that a ‘hard Brexit’ would hurt the UK economy.

The pound vs the US dollar over the last 10 days
The pound vs the US dollar over the last five days. Photograph: Thomson Reuters

So what’s changed?

Well, overnight, Theresa May’s government has accepted that MPs should be allowed a “full and transparent debate on the government’s plans to leave the EU”.

This proposals comes from the opposition Labour party, which is demanding “proper scrutiny” of May’s plans in Parliament before Article 50 is triggered, in March 2017.

Labour’s proposal will be debated in parliament today, and May has already signalled that she will allow such a debate

But she’s also added an amendment, insisting that such scrutiny shouldn’t “undermine the negotiating position of the government”. Effectively she doesn’t want her hands tied during the Brexit negotiations by MPs back in London.

She’s also NOT allowing MPs a formal vote on whether to trigger article 50.

But still....Labour MP Keir Starmer says this is a victory for MPs who have been demanding proper parliamentary scrutiny of the government’s plans for Brexit.

The prospect of MPs giving the Brexit plan more scrutiny has reassured investors, as it could limit the prospects of a damaging ‘hard Brexit’ which would see the UK banished from the single market.

Kathleen Brooks of City Index says it’s quite a turnaround for the pound, after four days of chunky losses:

What a difference a day makes, the pound is the top performer in the G10 on Wednesday, rising by more than 1.3% versus the euro, and 1% versus the US dollar. The trigger was a surprise announcement from Prime Minister Theresa May that she will allow Parliament to vote on her plan to take the EU out of the European Union.

This will allow the UK’s elected representatives to scrutinize Theresa May’s plans for Brexit. It has triggered a relief rally in the pound on Wednesday, as it could potentially limit the prospect of a “hard Brexit” taking the UK out of the single market, which has been a major concern for some investors and the business community in recent days.

Updated

Introduction

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

We’ll be watching the pound closely again, after last night’s heavy losses sent sterling down below the $1.21 mark last night.

Overnight, a government advisor has warned that leaving the EU customs union would have a significant negative impact on the UK economy, in the long term.

That’s added to concerns that Britain’s financial sector will suffer badly from Brexit, if banks start to shift jobs out of the City.

Bank of England deputy governor Sir Jon Cunliffe should give his views this morning; he’s testifying to the House of Lords from 10am on Brexit’s impact on the UK financial services business.

And airline group Monarch is just announcing a new £165m funding deal that should keep it running. More on that shortly....

Updated

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