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Pound Off Lows But Still Under Pressure as Brexit Showdown Looms

Charlotte Ryan and Emily Barrett
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Pound Off Lows But Still Under Pressure as Brexit Showdown Looms

(Bloomberg) -- The pound found a foothold just above Monday’s lows versus the dollar as U.K. Prime Minister Boris Johnson said he wouldn’t delay the country’s exit from the European Union, and left the door open to a snap election.

The British currency steadied around $1.206, having pulled back from intraday lows in late afternoon trading in the U.K. The pound had dropped as much as 1% during London trading, on speculation that the prime minister may call an early poll to shore up support for his Brexit stance ahead of the Oct. 31 deadline. A modest rally followed on reports that members of Parliament had drafted a bill to force a delay if no agreement on a separation could be reached with the EU by mid-October.

In a brief statement around 6 p.m. London time, the prime minister said he was encouraged by progress toward a deal and that there will be no Brexit deferment. But he did not rule out the possibility of an early poll, saying, “I don’t want an election, you don’t want an election.”

The pound may not have much room to recover for now, according to Valentin Marinov, head of G-10 currency strategy at Credit Agricole CIB, who says Johnson is laying the groundwork for a confrontation with the House on Tuesday.

“Risks of an early vote are still on the table,” Marinov wrote in an email, noting that the prime minister’s speech hadn’t sustained the pound’s rally. Sterling remains 0.78% lower on the day versus the dollar, and around 90.92 pence versus the euro.

The currency may drop as low as $1.10 if a mandate is secured for a no-deal departure from the EU, according to Lee Hardman, a strategist at MUFG. A Bloomberg survey of strategists carried out last month saw an election as a better scenario for markets than a no-deal Brexit, with a vote seen pushing the currency down to $1.19 versus $1.10 on a crash exit.

To contact the reporters on this story: Charlotte Ryan in London at cryan147@bloomberg.net;Emily Barrett in New York at ebarrett25@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, ;Benjamin Purvis at bpurvis@bloomberg.net, Daniel Taub, Craig Trudell

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