Sterling nears $1.40 on Brexit optimism

Cornelia Mascio
Gennaio 23, 2018

Many investors are also betting that Britain can secure a favourable deal with Brussels to leave the European Union, helping to push back a hurdle that has kept in check sterling's recovery.

Sterling hit $1.4005 in early Asian trading - the highest level against the U.S. dollar since Britain voted to leave the European Union in June 2016 - before retreating slightly as the European markets opened.

He added that the $1.40 level was a significant milestone in the pound's recovery.

Sterling was relatively flat against the euro at €1.14 as of 3.30pm, while the pound's level against the dollar hovered around $1.40.

If maintained it will mean more spending power for British holidaymakers this summer compared to mid-2016, when a pound would only buy around $1.30. "The bar to sell the pound is really high". Against the dollar, the pound has climbed 18.2% since October 2016.

Sterling is one of the strongest performers so far this year, largely due to the weakness of the dollar, and the best-performing G10 currency in the past six months having risen 7.3 per cent against the dollar.

Data last week showed that speculators increased their bets that sterling will rise to the highest level in over three years, on the view that Brexit talks had so far gone relatively well and that the United Kingdom economy was ticking along better than many had expected.

Currency traders believe the mood in London and Brussels suggests both sides are more amenable to hammering out a transition agreement between Britain and the trading bloc, and then an eventual deal for the terms of departure.

"There is definitely a feeling that Brexit is now far more likely to be "soft", which underestimates the risk for more problems ahead in our view but for the time being is leading to demand for GBP", said John Marley, head of FX strategy at Infinity International.

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