Following this weeks rally the pound edged lower on Thursday as investors booked profits and assessed the continued uncertainty about when Britain will exit the European Union and on what terms.
Sterling has surged to multi-month highs this week after Prime Minister Theresa May said lawmakers would get the chance to vote on a delay to Brexit if they choose not to back her Brexit withdrawal agreement. Sterling touched its highest since September, $1.3351 versus the dollar, on Wednesday and a 21-month high of 85.295 pence per euro. It is up more than 4 percent against both currencies so far in 2019.
The opposition Labour party said this week it would support a new referendum on Brexit after parliament defeated its alternative plan for leaving the EU.
Many banks have lowered their forecasts for a no-deal Brexit this week but there remains a high degree of uncertainty, with options ranging from May’s deal being passed, a delay to Brexit or even a second referendum.
On Thursday, the British currency slipped 0.2 percent to $1.3286 by 1535 GMT. The losses were of a similar magnitude versus the euro, with sterling 0.2 percent lower at 1.1683.
Investors have rushed to adjust their positions as the risks of a no-deal Brexit look less worrying, pushing sterling higher.
Germany faces the risk of steep U.S. tariffs on cars and a no-deal Brexit, a double whammy which could bring a golden decade of growth in Europe’s powerhouse economy to an end.
A stagnating German economy or even a recession would hold back the euro zone as a whole and cast uncertainty over the European Central Bank’s planned exit from its loose monetary policy.
The Berlin government is already facing a budget shortfall of up to 25 billion euros (21.5 billion pounds) by 2023 as the economic slowdown means tax revenues will come in below previous estimates, according to a finance ministry document.
Nonetheless, faced with the threat of a recession, Finance Minister Olaf Scholz is prepared to bend Germany’s strict debt rules.
Germany, which barely avoided a recession last year, is especially vulnerable to both the risks of U.S. tariffs of up to 25 percent on cars and Britain sliding out of the EU on March 29 without a deal to govern future trade relations with the bloc.