- Pound briefly climbs above $US1.38 to hit a fresh post-Brexit vote high.
- Low trading volumes due to a US holiday have helped boost the currency.
- On Friday, sterling gained as much as 1% on the dollar.
LONDON – The pound advanced to a fresh post-referendum high on Monday afternoon as sterling continued its start of year fight back from the last 18 months of weakness against the US dollar.
Sterling climbed to a high of $US1.382 against the greenback during early afternoon trade, with no obvious catalyst for the upwards move, which was one of roughly 0.6%. By 3.25 p.m. GMT (10.25 a.m. ET) it has retraced some of that move, and is up around 0.35%, just below $US1.38, as the chart below illustrates:
“Sterling stealthily rose to a fresh post-referendum high on Monday as the dollar rout continued unabated after last week’s drop,” Neil Wilson of ETX Capital said in an emailed message.
“With markets a touch quiet due to the Martin Luther King holiday in the US, thin volumes left traders going merrily with the trend, which has turned decidedly bearish on USD.”
The pound has quietly advanced in recent days, gaining almost 1% on Friday after reports that two eurozone finance ministers are lobbying for a soft Brexit deal that allows the UK to keep close ties to the EU once Britain leaves the bloc.
Bloomberg reported on Friday afternoon that “Spanish and Dutch finance ministers have agreed to work together to push for a Brexit deal that keeps Britain as close to the European Union as possible.”
In 2018, for the first time since the referendum, analysts are starting to turn bullish on the currency, thanks in part to continuing progress in Brexit, but also because of a continually weakening dollar. Earlier in the month, Viraj Patel, an FX strategist at Dutch lender ING said that sterling could climb as high as $US1.53 against the dollar by the end of year, higher than its pre-referendum levels.
Patel believes that if the UK and EU are able to strike a transition deal for Brexit early in the year, and UK economic data holds up, then 2018 will be a good year for the currency, especially when it is likely that the dollar will struggle during 2018, exacerbating the pound’s gains.
“We look for GBP to be one of the primary beneficiaries of reduced policy uncertainty – at least in the early part of 2018. Approval to proceed to Phase II of Brexit should prompt a brief re-rating of the UK economic cycle,” according to an overview of ING’s currency forecasts for 2018 by Chris Turner, ING’s head of currency.
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