Sterling steadied against a broadly weaker dollar this morning, in the run-in to U.S. and Japanese central bank meetings that were taking the market’s focus temporarily off the latest concerns over the shape of Britain’s exit from the European Union.
The pound had staged a modest recovery on Monday after slipping below $1.30 last week for the first time in a month.
The focus was briefly on the Bank of Japan and U.S. Federal Reserve meetings both ending on Wednesday, although Brexit concerns will take over once those events are out of the way.
Sterling is doing the better part of nothing ahead of tomorrow’s FOMC. The noise on Brexit over the past week has given us more reason to sell any rallies.
After a period of relative calm over the summer, debate around the pace and dangers of negotiations with Brussels over how Britain will exit the EU are back in the spotlight.
The head of Germany’s Bundesbank warned on Monday that banks based in Britain would lose access to EU markets after Brexit unless the country remains in the broader European trading group that includes nations such as Norway.
That suggested Berlin may take a tough line on an issue that carries with it the risk of undermining London’s huge financial sector, which accounts for around 10 percent of the UK economy as a whole.
The Bank of England also underlined the risks last week, warning that it may still need to cut interest rates again despite some stronger than expected signals on the economy in the past month.