Sterling remained weighed yesterday by the uncertainties over UK prime minister Theresa May’s campaign to convince MPs to back her Brexit withdrawal agreement, while shares in British housebuilders and Irish firms with exposure to the UK fell sharply.
Against the euro, sterling ended as up to 0.5% lower at 88.6p.
However, during the week, it has traded in a tight range pulled between assessments that Ms May will pull off an unlikely success for her Brexit deal to be approved by the Commons, and by alternative concerns that the pace of Bank of England rate-rising will be slowed if the worst of hard Brexits were to occur.
Sterling is closely watched by Irish exporters selling goods and services across the Irish Sea because their profit margins can be wiped out under sharp reversals for the UK currency.
A no vote on December 11 could see sterling stumble further should analysts assess that that means a no-deal in March is less likely on the future relationship between the UK and the EU.
It was a mixed day for Irish bank shares: AIB which is almost fully focused on its domestic market were up by over 1%, while Bank of Ireland shares slid almost 4%.
Bank of Ireland taps a significant amount of its earnings from the UK through a loans operation with the British Post Office.
With Brexit uncertainty lingering, the UK housing market will remain subdued, said Fiona Cincotta, senior market analyst at City Index.
“A disorderly no- deal Brexit could see [the price of] houses fall by as much as 30%.
"Taylor Wimpy, Persimmons and Barratt Development were all trading over 3% lower,” she said.
Political and financial analysts got more to think about. UK trade secretary Liam Fox, a veteran Brexit campaigner, told his colleagues to back Ms May’s divorce deal or risk trapping the state in the EU.
Speaking in a Bloomberg interview, Mr Fox said there is still a majority in the UK parliament in favour of staying in the EU and pro-Brexit members of parliament who plan to reject Ms May’s deal could thwart the whole process.
“There is still a remain majority in the House of Commons,” said Mr Fox in the interview.
“My biggest worry is we would be locked into some kind of customs union arrangement by parliament,” he said.
The UK prime minister also told broadcasters that the opposition UK Labour Party is trying to “frustrate” Brexit, but the argument may have more clout coming from Mr Fox, who has been enlisted to bring around fellow Brexit-backers who loathe her deal because it maintains close links to the EU.
Ms May told broadcasters that she was focussed on the December 11 vote.
“The focus of myself and the government is on the vote that is taking place on December 11.
"We will be explaining to members of parliament why we believe that this is a good deal for the UK,” she told reporters on the plane to the G20 summit in Argentina when asked if she had a back-up plan.
I ask every member of parliament to think about delivering on the Brexit vote and doing it in a way that is in the national interest and doing it in a way that is in the interests of their constituents because it protects jobs and livelihoods.
Ms May said if her plan was voted down by the UK parliament, the government and businesses would have to make decisions about implementing preparations for no deal.
Asked in a BBC interview if she would seek a second vote, she declined to answer directly, repeating her comment that she was only focusing on the December 11 vote.
The UK parliament will begin five days of debate on December 4, with the final vote due a week later.
The main opposition Labour Party and a cross-party group of senior MPs have put forward amendments to block Ms May’s EU withdrawal deal and to rule out a no-deal Brexit.
“Sadly, what we see from the Labour Party (is) their various attempts to frustrate Brexit and frustrate this vote,” Ms May told the BBC.
“What I see from Labour is an attempt to frustrate what the government is doing to deliver Brexit for the British people. That is actually a betrayal of the British people,” she said.
On Brexit, Capital Economics in London said it believes a no-deal would probably lead to a UK recession but “it would be far less severe” than the worst-case “harrowing” outcome projected by the Bank of England earlier in the week.
“To recap, the [the Bank of England] thinks that GDP could fall by between 3% and 8% if the UK leaves the EU without a deal.
"The scenarios were deliberately extreme in order to test the financial sectors’ resilience to an adverse Brexit outcome.
"And viewed in this way, the exercise was reassuring.
"Indeed, despite house prices falling by a third, banks were deemed able to cope,” the economists said.
US bank Morgan Stanley, however, forecast that UK shares could be a big winner.
“Although Brexit uncertainty makes it hard to envisage the UK” as the best- performing developed market in 2019, “there are still enough compelling reasons to be overweight,” strategists led by Krupa Patel wrote in a note.
“The key reason is that the UK is very cheap and unloved,” the Morgan Stanley analysts said.
Strategists are split on whether UK stocks are cheap enough to outperform in an environment of immense political uncertainty.
Sanford C Bernstein calls the market “uninvestable,” while Citigroup says investors have offloaded British stocks aggressively already.
Morgan Stanley’s stance would put it closer to the Citigroup camp.
The brokerage says UK stocks benefit asymmetrically from the pound, since sterling weakness boosts earnings while appreciation drives inflows and valuation re-rating.
However, it’s not like Brexit is entirely out of mind for the strategists.
They recommend buying domestically-focused British stocks versus exporters but only if political uncertainty fades.
The slump in the price of global oil prices in recent weeks continued.
Brent crude fell 82c to $58.69 a barrel in London, undermining British and Irish oil explorers.
In the US, stockmarkets recovered from falls amid optimism from US Trade Representative Robert Lighthizer over the US and China trade clash.
Presidents Donald Trump and Xi Jinping are scheduled to meet over dinner later today at the G20 summit.
“The G20 meeting is underway, with trade at the top of the agenda for the world’s leaders,” said Joshua Mahony, market analyst at online broker IG.
“For markets, there is one meeting which matters most of all — a breakthrough in trade relations between Mr Trump and Mr Xi potentially reversing months of losses for markets such as the Australian dollar and Chinese yuan,” he said.
Additional reporting Bloomberg and Reuters
