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Pound haunted by Brexit, yen looks to Abe successor vote

© Reuters.

By Hideyuki Sano

TOKYO (Reuters) – The British pound flirted with a 1-1/2-month low against the dollar on Monday on fears about no-deal Brexit while investors waited for Japan’s ruling party to choose a successor to Prime Minister Shinzo Abe.

The British pound changed hands at $1.2806 , having hit a 1 1/2-month low of $1.2767 on Friday.

Against the euro, it slid to 5 1/2-month low of 92.54 pence per euro () and last stood at 92.47.

The pound was under pressure from fears that Britain will end its post-Brexit transition period without agreeing any trading arrangements.

London explicitly acknowledged last week that it could break international law by ignoring some parts of its European Union divorce treaty, prompting a rapid rebuke from the EU’s chief executive.

Former British prime ministers Tony Blair and John Major said on Sunday Britain must drop a “shocking” plan to pass legislation that breaks its divorce treaty with the European Union, in a breach of international law.

The dollar stood at 106.13 yen , stuck in its familiar territory in the past couple of weeks.

Japanese Chief Cabinet Secretary Yoshihide Suga is poised to become head of Japan’s ruling party on Monday and prime minister on Wednesday, succeeding Shinzo Abe, the nation’s longest-serving leader.

Because Suga has long been a loyal aide to Abe and has vowed to continue his policies, few market players expect radical changes.

“The focus is on the line-up of his cabinet as well as whether he will call a snap election,” said Minori Uchida, chief FX strategist at MUFG Bank. “He is saying he will continue and advance Abenomics but it is questionable how much advancement he can make.”

The euro held firm after three straight days of gains at $1.18455 ().

The common currency was supported after the European Central Bank showed no apparent sign of stemming the single currency’s appreciation.

The dollar’s index against a basket of currencies stood little changed at 93.317 (), with focus on the Federal Reserve’s policy announcement on Wednesday.

Expectations of further monetary easing by the Fed have been a drag on the dollar. The has lost more than 4% so far this quarter.

But some analyst say markets may have gone too far in expecting further stimulus from the Fed.

“Having set aside yield curve control (YCC) as a near-term policy option, the FOMC does not seem to have an operational consensus on how to use the balance sheet,” New York-based strategists at Standard Chartered (OTC:) Bank wrote in report. “This may disappoint investors.”

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