Thursday 17 October 2019 2:37 pm

Pound reverses gains as DUP rejects Boris Johnson’s Brexit deal

The pound has dramatically reversed course from this morning’s five-month high to trade flat against the dollar as optimism about a new Brexit deal has faded.

Read more: Boris Johnson hails ‘great’ new deal

Sterling rocketed over one per cent against the dollar this morning to the $1.29 level not seen since May after Prime Minister Boris Johnson said he had secured “a great new” Brexit deal.

However, the pound has whipsawed after the Democratic Unionist Party (DUP), the hardline Northern Irish party allied with the Tories, said they could not accept the deal.

The announcement has cast the fate of the deal into doubt, as it must be approved by a parliament in which Johnson’s government lacks a majority, sending sterling flat against the dollar by 2.30pm UK time at $1.281.

Stephen Innes, an Asia and Pacific market strategist writing for forex broker Axitrader, said the fall was unsurprising given that speculation over the DUP’s position has been “the critical driver of sterling”.

The DUP has come to play a crucial role in Brexit negotiations as the party that supported the Conservative party after it lost its majority in 2017. It is also a key voice of Northern Irish unionism which many Tory MPs feel obliged to follow.

The Unionist party said in a statement at around 1pm that it “will be unable to support” the deal. It said: “The proposals are not, in our view, beneficial to the economic well-being of Northern Ireland and they undermine the integrity of the Union.”

This roadblock to a deal has also sent bond yields – which move inversely to prices – falling. The yield on the 10-year UK government bond had risen to 0.791 per cent shortly after 10.30am, indicating investor confidence over the agreement.

Yet the yield has since fallen back to 0.709 per cent as investors re-buy safe-haven assets such as bonds as pessimism grows.

Philip Shaw of Investec said the deal may still pass parliament, however. He said the bill’s success would “depend on how many Labour MPs break party instructions and support it”.

Read more: Brexit: ‘We will negotiate until the last second,’ says Angela Merkel

“In March, the number was five. In short, we suspect that the government will win the day on Saturday, but it is impossible to be confident”.

(Image credit: Getty)