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Sterling steady as rift opens between Philip Hammond and hard Brexiters

Jake Cordell
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Conservative Leader Theresa May Addresses Party Conference
Remainer Philip Hammond and Remain-newspaper-column-writer Boris Johnson might want different things from Brexit (Source: Getty)

The weekend may have brought some welcome respite for currency traders after a frantic few weeks of selling and shorting, but the break still hasn't done sterling any good.

It's as-you-were on the money markets today with the pound falling shy of $1.22 against the US dollar and €1.11 against the single currency.

At lunchtime one pound bought $1.2166, down 0.2 per cent, and off 0.5 per cent against the euro at €1.1057 as the eyes turned to the upcoming European Central Bank (ECB) meeting this week.

The lack of movement comes despite another batch of Brexit speculation in the morning press, with the reports of a rift between soft Brexiter-cum-chancellor Philip Hammond and Theresa May's gang of hardliners.

Read more: Be afraid, the Vix is rising

Hammond, curiously, has been accused of taking the "Treasury view" and "arguing like an accountant" (that's the chancellor of the exchequer, arguably the UK's most important bean counter) in order to "undermine Brexit" this morning. Those attacks follow reports in the Sunday papers that suggested Hammond was on the verge of quitting after being sidelined in internal Brexit talks.

Some speculation, however, indicates he could be getting his way, with Theresa May prepared to carry on making contributions to the EU budget in exchange for unfettered access to the Single Market for the UK's dominant financial services industry. Hammond has made reassuring the city one of his priorities since he settled into Number 11 after the summer break.

In other weekend developments, aides of the Prime Minister were forced to deny she is at odds with the governor of the Bank of England Mark Carney after she criticised his quantitative easing policies in her high profile speech to the Conservative Party conference.

Despite all that, sterling stayed flat in early morning trading.

"It's quite interesting to see that the market is not reacting to the types of stories that in the first few weeks post-Brexit vote would have seen small bouts of sterling upside," said Jordan Rochester, an analyst at investment bank Nomura.

Instead, Rochester asserts that all the time the UK insists it will not accept freedom of movement and EU leaders refuse to countenance a special Brexit package, the market is buying the EU's "hard Brexit or no Brexit" line.

Read more: Theresa May is annoying both Remainers and Leavers

With sterling flat, the FTSE 100 even managed to move of its own accord this morning, without just heading in the opposite direction to the pound. Unfortunately, that direction was down, with the bluechip index shedding 0.3 per cent at the London open, falling to 6,995. In a relatively quiet start to the week for equities, Anglo American was the only mover of note, climbing 1.5 per cent.

Elsewhere, government bonds remained under focus, with the yield on benchmark 10-year UK debt jumping another eight basis points overnight to close in on a post-referendum high of 1.17 per cent. Comments from the Bank of England's Ben Broadbent echoing comments from Mark Carney that inflation is likely to "overshoot" Threadneedle Street's official two per cent target had bond investors demanding a higher return.

With inflation and unemployment figures out later this week, the markets are expected to make a rare move in response to data, rather than rumour, over the course of the next few trading days.

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