ADVERTISEMENT

Pound Off High as Brexit Party Tops Early U.K. EU Vote Results

A no-deal exit would be negative for the economy, increase the chance of an interest-rate cut and weigh on sterling.

Pound Off High as Brexit Party Tops Early U.K. EU Vote Results
A British one pound coins stands in this arranged photograph in London, U.K. (Photographer: Jason Alden/Bloomberg)

(Bloomberg) -- The pound’s initial gains were trimmed after the hard-line Brexit Party took the lead in the first wave of results of the nation’s European parliamentary election.

Sterling erased gains of as much as 0.3% as Nigel Farage’s new single-issue Brexit Party winning 39% of the vote in the northeast of England, the first full result. Labour took just 19% of the vote, from 36% last time. The swing may harden the stance the next Tory leader takes toward Britain’s divorce from the European Union, following Prime Minister Theresa May’s resignation Friday.

The results cap a month of misery for the pound, in which the currency posted a record losing streak against the euro and touched a four-month low versus the dollar. The weakness has been driven by speculation that May’s tenure was coming to an end and her successor may try and take the U.K. out of the EU without a deal.

However, such an approach is likely to be opposed by most U.K. lawmakers and would raise the risk of a snap general election. A no-deal exit would be negative for the economy, increase the chance of an interest-rate cut and weigh on sterling.

The pound edged 0.1% higher to 1.2728 as of 8.50 a.m. in Sydney, and inched up 0.1 percent to 88.07 pence per euro.

“Over the coming weeks sterling could certainly be hit if the market begins to assign an even larger probability of a no-deal Brexit, and cable could go below the December lows of 1.2487,” said Jane Foley, head of currency strategy at Rabobank International in London. “We could see it at 1.10.”

Ahead of May leaving office on June 7, investors have already turned their attention to who could replace her. In a move seen as an attempt to placate euro skeptic Tory members and to see off the challenge from the Brexit Party, Boris Johnson, a top contender to take over as prime minister, said the country must prepare for a no-deal divorce as a negotiating tactic with the bloc.

--With assistance from Ruth Carson.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Michael G. Wilson

©2019 Bloomberg L.P.