The pound came off its lows, with a little help from Angela Merkel (Justin TALLIS)

London (AFP) – The pound came off its lows on Monday thanks to German Chancellor Angela Merkel who struck a conciliatory tone over further Brexit talks.

The British currency had dropped earlier following weak UK construction data and as Prime Minister Theresa May was poised to try and finally unlock the Brexit stalemate.

During a visit to Japan, Merkel urged “creativity” and “goodwill” in upcoming Brexit talks and said “we want to do everything to avoid a no-deal because that would increase the uncertainty”.

While the chancellor ruled out re-opening negotiations, crunch topics like the unpopular Northern Ireland “backstop” provision could be discussed in the so-called political agreement that accompanies the Brexit deal, she said.

– High-stake game –

“Angela Merkel’s comments that a solution could be found to the backstop has given the pound a lift this afternoon — allowing it to recoup its losses from earlier,” Interactive Investor Rebecca O’Keeffe told AFP.

“Whilst there is no suggestion that the EU want to renegotiate the terms of the withdrawal, the fact that Chancellor Merkel is hinting at a possible compromise is good news for sterling and the UK.”

May on Sunday said she would be “armed with a fresh mandate and new ideas” when she next meets European Union negotiators over her Brexit deal.

EU officials have insisted that the deal — rejected by British lawmakers — is not open for renegotiation.

But May wrote in the Sunday Telegraph that she would be “battling for Britain and Northern Ireland” in her efforts to get rid of the agreement’s unpopular “backstop” provision.

The so-called backstop is intended to ensure there is no return to a hard border with Ireland, but Brexit supporters fear it will keep Britain tied to the EU’s customs rules.

Rabobank analyst Jane Foley said that the pound’s resilience since the start of the year was based on the belief that a “hard” Brexit would be avoided.

“Headlines suggesting that May will not get the deal that she wants are inferred by investors as meaning that Brexit will likely be delayed,” she said. “It is a game with very high stakes”.

– ‘Snuffed out recovery’ –

London’s benchmark FTSE 100 index, featuring large multinationals earning in dollars and euros, meanwhile slipped back from earlier highs because of the recovering pound, but still outperformed its eurozone peers.

The IHS Markit/CIPS UK Construction purchasing managers’ index fell to 50.6 in January from 52.8 the previous month.

“Uncertainty about Brexit has snuffed out the recovery in the construction sector,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“In the unlikely event of a no-deal Brexit, the sector likely will slide into another recession, amid weaker business confidence and tighter credit conditions.” 

In New York, the Dow Jones was flat in the late morning, with Briefing.com analyst Patrick O’Hare saying there was little news to push stocks either way.

“There hasn’t been anything in the headlines to make much of a difference with respect to broad market sentiment,” said O’Hare.

Oil prices fell after hitting their highest levels this year as the crisis in OPEC producer Venezuela fuelled concerns over potential tighter crude supplies. 

– Key figures around 1640 GMT – 

London – FTSE 100: UP 0.2 percent at 7,034.13 points (close)

Frankfurt – DAX 30: FLAT at 11,176.58 (close)

Paris – CAC 40: DOWN 0.4 percent at 5,000.19 (close)

EURO STOXX 50: DOWN 0.2 percent at 3,164,71

New York – Dow: DOWN 0.1 percent at 25,047.24

Tokyo – Nikkei 225: UP 0.5 percent at 29,883.77 (close)

Hong Kong – Hang Seng: UP 0.2 percent at 27,990.21

Shanghai – Composite: Closed for a public holiday

Pound/dollar: DOWN at $1.3059 from $1.3084 at 2200 GMT Friday

Euro/pound: DOWN at 87.50 pence from 87.57 pence

Euro/dollar: DOWN at $1.1427 from $1.1459

Dollar/yen: UP at 110.03 yen from 109.51

Oil – Brent Crude: DOWN 46 cents at $62.29 per barrel

Oil – West Texas Intermediate: DOWN $1.07 at $54.19

burs-jh/dl

Disclaimer: This story is published from a syndicated feed. Siliconeer does not assume any liability for the above story. Validity of the above story is for 7 Days from original date of publishing. Content copyright AFP.