Sterling dropped on Wednesday, handing back some of the gains from the previous day, as investors took a more cautious view of aspects of UK prime minister Theresa May’s Brexit speech.
The UK currency fell 0.8 per cent to $1.2314 against the dollar, having surged by more than 3 per cent a day earlier to deliver its biggest surge in two decades.
Sterling also dropped 0.6 per cent against the euro to 86.8p by the time European markets closed, giving away some of its 2 per cent gain from Tuesday.
Investors chose on Tuesday to focus on Ms May's commitment to holding a parliamentary vote on the ultimate outcome of EU divorce talk, that she would seek a phased implementation of new arrangements, as well as comments from US president-elect Donald Trump that the dollar was "too strong".
The mood was decidedly more cautious by the time traders took to their desks on Wednesday, as the zeroed in on the finer detail and concerns re-emerged about Ms May’s tough conclusion that she would prefer no deal with the EU than a bad deal after Brexit.
“Make no mistake, this is a combative stance that will undoubtedly cause issues once the negotiations being with the EU,” said Goodbody Stockbrokers economist Dermot O’Leary.
Downside
John Fahey, a senior economist with
AIB
, said: “The risks to sterling remain to the downside as the UK could find it very difficult to achieve some of its objectives in what are likely to be very challenging negotiations for the country.”
Mr Fahey added that some of Tuesday’s jump by sterling could be explained by the fact that the currency had been under pressure in the lead-up to Ms May’s speech.
ETX Capital's chief foreign exchange broker Richard Wiltshire told Reuters that Wednesday's fall-back by sterling was inevitable. "It was the biggest move since Adam was a lad [on Tuesday], so it was natural that there was a correction. There is still a lot of nervousness regarding sterling, and it is going to be a bit of a rocky road, so we are not out of the woods yet."
Over on equity markets, the FTSE 100 eked out a 0.4 per cent gain in London, to 7,247.6 points, while the Iseq index in Dublin lost 0.4 per cent to 6,521. The pan-European Stoxx 600 benchmark edged 0.2 per cent higher.
