Pound Retreats As Johnson Seeks Election To Deliver Brexit

Boris Johnson has proposed a December 12 general election, which could give him enough votes in parliament to push through his Brexit agreement AFP / GLYN KIRK

The British pound dropped against the dollar on Friday, as UK Prime Minister Boris Johnson sought to force through Brexit with the help of an early general election.

EU ambassadors on Friday meanwhile postponed until next week a decision on how long to delay Britain's exit from the bloc.

Around 1530 GMT, sterling was down at $1.2841, having earlier this week broken through $1.30 for the first time in five months on optimism that a no-deal Brexit would be avoided.

Elsewhere on Friday, European stock markets spent most of the day lower after a mixed showing in Asia, but then most climbed higher on the coat tails of Wall Street as traders digested another batch of global corporate earnings.

"It's been a mixed day on European equity markets as the Brexit saga trundles on," said CMC Markets UK analyst David Madden.

London's blue-chip FTSE 100 index was the outlier, ending the day down less than 0.1 percent.

"Traders could be in for further political paralysis next week," Madden said, as the length of the Brexit extension and early elections remained to be decided.

In foreign exchange, "the latest political twist keeping sterling under pressure has a touch of surrealism about it", noted Ricardo Evangelista, senior analyst at ActivTrades.

"There is an absurdity about the situation and the markets are reacting by once again walking away from the pound."

With Johnson giving up on a pledge for Britain to leave the EU by October 31, the prime minister has said his wish is now for a general election on December 12.

Should it be held and his Conservative party win, analysts see parliament finally approving his Brexit deal.

But opposition MPs are reluctant to agree to Johnson's poll demand unless they can be certain Brexit has been postponed beyond Halloween and that the UK will be spared a no-deal divorce from the European Union.

But some EU members, notably France, oppose granting an extension until January 31, as requested by the UK parliament.

They instead want a shorter delay unless Britain can show it is organising a general election that could clarify its Brexit position.

US-China trade

Away from the Brexit saga, investors awaited the latest developments in the China-US trade talks.

Optimism that the two economic superpowers would hammer out details for a mini agreement by next month have helped support equities this week.

There remain concerns however that the talks could be derailed at the last minute, with the passage of a US bill defending civil rights in Hong Kong the latest bump in the road.

Adding to the mix were comments from Vice President Mike Pence, who vowed support for Hong Kong pro-democracy protesters and hit out at China's trading behaviour.

US stocks moved higher on Friday.

"Yesterday, we heard US Vice President Pence say the US doesn't want to decouple from China," CMC Markets' Madden said.

While some of Pence's other comments were more pointed "overall the comments seemed to have been struck the right cord with traders," said Madden.