Great week for Sterling
- Posted by Shyam Gokani in Bank of England, Brexit, Currency, Dollar, Economy, EUR, GBP, Mark Carney, Sterling, UK
- May 27, 2016
- No Comments
Sterling steadied this morning, closing off a week of solid gains built up on the growing belief that Britons will vote to remain in the European Union at next month’s referendum, thereby avoiding market volatility that would damage the pound.
A series of polls this week has pointed to the “Remain” camp opening up a lead over those favouring Brexit, lifting the pound to a three and a half-month high against the euro and a three-week high against the dollar.
Despite the growing conviction in financial markets that Brexit will be avoided at the June 23 vote, traders are taking no chances and are hedging their bets via options. The cost of hedging against swings in sterling over the next month held steady on Friday near the seven-year high hit on Thursday.
Sterling’s recent rebound ran out of steam as this week drew to a close, as traders took profit ahead of a key, long-term technical resistance level at $1.4764. That’s the 200-day moving average, which sterling hasn’t traded above since November.
Worries about Brexit drove the pound down 11 percent on a trade-weighted basis between mid-November and early April, when it hit a 2-1/2-year low. But it has since recovered around half of that as investors have priced out chances of an interest rate cut that some were factoring in if Britain opted to leave.
On the data front, the Office for National Statistics on Thursday confirmed the British economy grew 0.4 percent in the January-March period
Sterling is on track for its third consecutive monthly rise against the dollar, a winning streak not seen for four years. There are no major UK economic releases scheduled for Friday, and UK markets will be closed on Monday for a public holiday.
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