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Pound Rebounds On Data Surprise, Brexit Hopes

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Sterling rebounded from early lows on Monday and headed towards a five-week high on Monday, as surprisingly strong data and growing optimism that Britain will not crash out of the European Union (EU) without a deal, boosted demand for the British currency.

British Prime Minister Boris Johnson will try for a second time on Monday to call a snap parliamentary election.

But the snap election is set to be thwarted once more by opposition lawmakers who want to ensure Johnson cannot take Britain out of the EU without a divorce agreement in place.

“The threat of a no-deal Brexit has somewhat receded but has not gone away completely, which is reflected around current levels,’’ said Esther Maria Reichelt, a strategist at Commerzbank.

Against the dollar, the pound gained 0.25 per cent to $1.2321 after weakening 0.2 per cent to $1.2233 earlier.

It hit a one-month of $1.2353 last week.

Versus the euro, it also gained 0.25 per cent to 89.48 pence.

Johnson, last week, failed to win enough support from lawmakers to call an early election and parliament also approved a bill, which aims to block a no-deal Brexit at the end of October.

That would force Johnson to seek a delay to Brexit.

Sterling had a rollercoaster week during which it plunged to three-year lows before rebounding strongly as lawmakers voted to block a no-deal Brexit.

In a note published late on Friday, strategists at Goldman Sachs raised the probability of a Brexit deal to 55 per cent from 45 per cent earlier and cut the likelihood of a “no-deal” to 20 per cent from 25 per cent previously.

However, there is some uncertainty on whether the EU will allow an extension, while the Daily Telegraph reported Johnson has prepared plans to legally stop any Brexit extension.

The uncertainty prompted hedge funds to unwind some of their negative bets against the British currency.

Speculative short positions on the pound slipped in the latest week to 84,959, according to data from the U.S. Commodity Futures Trading Commission.

The pound also received a rare boost from surprisingly strong economic data.

Economic output in July alone was 0.3 per cent higher than in June, the Office for National Statistics said, marking the biggest rise since January and topping all forecasts in a Reuters poll of economists that had pointed to a 0.1 per cent increase. (NAN)

 

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