In the Aftermath of U.S. Election, Pound Emerges a Surprise Winner

The pound is an unexpected beneficiary due to investors’ concern about political shifts outside Britain.

Since last Friday, Sterling has climbed against all of its 31 major peers. Global markets were thrown into turmoil as traders reappraised populist movements and inflation in a week that saw Donald Trump’s electoral upset in the U.S. and the sterling has been the surprise winner during the week. Last month the pound trailed behind 150 peers and it was the worst performer and the currency’s recent surge marks a reversal from that situation of last month.

Before votes that may demonstrate the strength of anti-establishment movements in the region, particularly Italy’s constitutional referendum, investors are cooling on the shared currency as Britain’s currency heads for its best week in more than seven years versus the euro.

“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 U.S. 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 was headed for its second week of gains versus the greenback as it climbed 0.8 percent to $1.2660 as of 10:15 a.m. in London. Set for a 3.8 percent increase against the single currency in the week, the biggest since January 2009, it strengthened 1.2 percent to 85.77 pence per euro.

A Supreme Court hearing scheduled for Dec. 5-8 that potentially may result in a ruling that delays Britain’s exit from the European Union is what the traders are waiting for and they have s reduced their short bets against the pound as they make the wait for the court hearing.

According to Commodity Futures Trading Commission data from the week ended Nov. 1, after reaching a record-high level in October, short-pound positions versus the dollar, or bets that the U.K. currency will fall, receded this month.

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 pound completed its best week against the dollar since 2009 on Nov. 4. However since the June 23 referendum, the currency is still down about 15 percent.

“There is just a bigger theme now and we just don’t have a trigger for more pound downside here. 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,” said Manuel Oliveri, a currency strategist at Credit Agricole SA’s corporate- and investment-banking unit in London.

(Adapted from Bloomberg)

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Categories: Economy & Finance

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