Sterling picks up as investors expect “sausage row” deadline extension By Reuters

By Elizabeth Howcroft

LONDON (Reuters) – The British pound edged higher on Wednesday as investors were optimistic that Britain and the European Union would agree to extend an exemption on customs checks on chilled meat shipments to Northern Ireland that have strained their relations.

Prime Minister Boris Johnson said on Tuesday that Britain expects to reach an agreement on extending the exemption soon.

“I think everybody is assuming that that extension is going to be granted,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.

Currency analysts say that the post-Brexit dispute between Britain and the EU, dubbed the “sausage row”, has had little impact on the pound so far.

At 1107 GMT, the pound was up 0.2% on the day at $1.3866, having touched as high as $1.3873 at 1033 GMT. On a wider view, it was still on track for its worst month since September.

Against the euro, it was up 0.3% at 85.725 pence per euro.

ING FX strategists wrote in a note to clients that low volatility means there are unlikely to be big moves in sterling but “the market will take notice of any progress on trade tension with the EU”.

“Here a 3-month extension of the waiver on UK exports of chilled meat to Northern Ireland would be welcome.”

Separately, Northern Ireland’s high court dismissed a legal challenge to the post-Brexit Northern Ireland Protocol – which CIBC’s Stretch said removed another potential political headache for sterling.

Euro-sterling implied volatility gauges with one-month maturities were close to their lowest since mid-2019.

After the U.S. Federal Reserve’s surprise hawkish shift on June 16, the dollar has broadly strengthened, hurting the pound.

Cable had hit a two-year high of $1.425 at the start of the month, but since the Fed meeting, it has been mostly in the $1.38-$1.40 range.

Investors are also facing uncertainty over the spread of the Delta variant of COVID-19 in Britain, which this month forced the government to delay a full reopening of the economy.

The government has said now expects to fully reopen pubs, restaurants, nightclubs and other hospitality venues on July 19.

Prices charged by British retailers fell slightly faster in June than in May due to a fierce battle between supermarkets, but an industry group said growing costs linked to COVID-19 and Brexit might add to the rise in broader inflation soon.