LONDON: The pound hit above $1.26 for the first time in five weeks on Friday, on track for its best fortnightly performance in eight years as investors focused on risky political events in the euro zone and businessman Donald Trump's US presidential victory.
Sterling built on gains against the euro after surging to a six-week high on Thursday as investors unwound short positions against the pound ahead of an Italian constitutional referendum in December with the potential impact of Trump's win on other populist movements in mind.
The currency was also up over half a percent against the dollar, which has strengthened since the US election outcome as markets weigh the impact of the Republican's presidency on global growth.
If Trump's victory foreshadows more victories for populist politicians in Europe over the next year, that may also give Britain more cover from the politically driven selling that has hurt sterling since the Brexit vote in June.
"The pound seems to be riding the resurgent dollar's coattails, driven by excessive short positioning that leaves the pound the least vulnerable against the strengthening dollar at the moment," said Valentin Marinov, head of G10 FX research at Credit Agricole in London.
"The other support is that markets believe that Trump's victory could boost the UK's bargaining position going into the Brexit negotiations at some point next year.
That remains to be seen." Last week, the battered pound registered its best week against the greenback since 2009 as worries eased that Britain would make a "hard" exit from the European Union and lose its access to the single market.
Against a weakening euro - which faces a slew of political events in the coming months, from Italy's referendum next month to French presidential elections in the spring - the pound climbed over half a percent. It traded at around 86.24 pence at 0900 GMT, its strongest since the end of September.
But Brexit, the shape of which remains unclear, remains the main driver of sterling.
"EU bureaucrats will also want to try and discourage the kind of populism that created Brexit and Trump within its own states with an unbeneficial deal for the UK," CMC Markets strategist Jasper Lawler said in a note.
"A bad deal for the UK is self-defeating for the EU economically, but serves a political purpose of trying to stop its own eventual break-up."
While the impact of political events on currencies have overshadowed economic issues, British labour data next week is expected to continue the recent stream of resilient post-Brexit figures and may keep the pound relatively supported.
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