London: Investors’ concern about political shifts outside Britain is benefiting the pound.
Sterling has climbed against all of its 31 major peers since last Friday. It’s the surprise winner during the week of Donald Trump’s electoral upset in the US that threw markets into turmoil as traders reappraised populist movements and inflation. The pound’s recent surge marks a reversal from last month, when it was the worst performer, trailing behind 150 peers.
As Britain’s currency heads for its best week in more than seven years versus the euro, investors are cooling on the shared currency before votes that may demonstrate the strength of anti-establishment movements in the region, particularly Italy’s constitutional referendum.
“It’s very much about risk elsewhere: We have the Italian referendum in early December, we have very important elections in Germany and France," said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “Maybe approaching the US election, some people kept their long euro-sterling positions, and now we see this positioning being closed down," he said, referring to wagers that the euro strengthens versus the pound.
Sterling climbed 0.8% to $1.2660 as of 10:15 am in London and was headed for its second week of gains versus the greenback. It strengthened 1.2% to 85.77 pence per euro, set for a 3.8% increase against the single currency in the week, the biggest since January 2009.
Traders reduced their short bets against the pound as they wait for a Supreme Court hearing scheduled for 5-8 December that potentially may result in a ruling that delays Britain’s exit from the European Union.
Short-pound positions versus the dollar, or bets that the UK currency will fall, receded this month, after reaching a record-high level in October, according to Commodity Futures Trading Commission data from the week ended 1 November.
The pound completed its best week against the dollar since 2009 on 4 November, amid speculation Brexit will be delayed or watered down after a court ruled the government can’t start the process of leaving the EU without a vote from lawmakers. The currency is still down about 15% since the 23 June referendum.
“There is just a bigger theme now and we just don’t have a trigger for more pound downside here," said Manuel Oliveri, a currency strategist at Credit Agricole SA’s corporate- and investment-banking unit in London. “Hard-Brexit fears were falling already, and you have a market that is positioned one-sided. When there’s no more impulse, these positions get taken off at some point." Bloomberg
Charlotte Ryan contributed to this story.