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REFILE-UPDATE 1-British PM drives sterling bounce after four days of Brexit woe
October 12, 2016 / 12:32 PM / a year ago

REFILE-UPDATE 1-British PM drives sterling bounce after four days of Brexit woe

(Refiles with UPDATE 1 tag)

By Jemima Kelly

LONDON, Oct 12 (Reuters) - Sterling rebounded on Wednesday after Britain’s prime minister said she would offer to give lawmakers some scrutiny of the Brexit process and that Britain would seek “maximum possible access” to Europe’s single market.

Sterling plunged in the wake of Britain’s shock vote to leave the European Union -- it has lost almost 18 percent against the dollar since the referendum on June 23. On Tuesday, it hit its lowest ever level on a broad, trade-weighted index basis, according to the Bank of England’s website.

Having fallen for four straight days on growing anxiety that Britain’s exit from the European Union would see it give up access to the EU’s single market in order to impose maximum control on its borders, a scenario known as “hard Brexit”, the pound recovered more than 1 percent on Wednesday.

It had earlier rallied as much as 1.6 percent, to a high of $1.2326, on a news report that lawmakers would be given the chance to vote on Prime Minister Theresa May’s Brexit strategy.

It trimmed some of those gains after a spokeswoman said there would be no vote on triggering “Article 50”, which will start the formal process to take Britain out of the EU and which May has said she will invoke by the end of March.

“The move this morning was on May’s comments but largely because they were initially read as something they weren‘t: she is not really changing stance, parliament will not be able to veto a hard Brexit,” said the head of hedge fund sales at a big currency trading bank in London.

By 1205 GMT sterling was trading up 1.1 percent on the day at $1.2253. It had climbed as high as $1.2275 during the weekly Prime Minister’s Questions in parliament, after May said Britain would be ambitious in its Brexit negotiations and would strive for “the maximum possible access to the European market”, but quickly reversed that move.

“Now that we’ve got ourselves pricing in a pretty hard-looking Brexit into market sentiment ... we’re going to be sensitive to anything that challenges that view that we’re putting control of immigration above protecting access to the Single Market, bank passporting etc,” Societe Generale macroeconomic strategist Kit Juckes said.

Against the euro, sterling also jumped 1.2 percent on the day to 89.97 pence.

Norway’s sovereign wealth fund, the world’s largest and a major owner of British shares and government bonds, told Reuters on Tuesday that Friday’s “flash crash” was a correct move that reflected the expectations for Britain’s economy.

The crash wiped 10 percent off the value of the pound, taking it as low as $1.1491, in just 10 minutes, although it bounced back to finish the week just above $1.24.

The major banks have stuck to forecasts of about $1.20-1.25 for sterling, but that apparently computer-trader-driven slide has left some wondering if a drop to near parity is likely.

“What is clear is there is a lack of interest to buy sterling from clients. It is hard to see who is going to come in and support it from here,” said the hedge fund sales head. (Additional reporting by Patrick Graham; Editing by Catherine Evans)

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