Sterling hits three-week highs, boosted by upbeat data

LONDON: Sterling extended gains above $1.32 to hit a three-week high on Wednesday, as speculators further cut bets against the currency after recent data indicated that the economy was holding up surprisingly well after the Brexit vote.

Short positions on sterling had reached a record high of 94,238 contracts in the week to Aug. 16 and traders said many speculators were now unwinding bets and booking profits.

Sterling rose 0.7 percent against the euro to 85.13 pence per euro, while against the dollar, it rose 0.3 percent to $1.3250, its highest since August 4.

Sterling has risen 1.3 percent against the dollar this week on top of 1.2 percent of gains last week, underpinned by recent upbeat data. Data released on Tuesday showed orders for British manufacturing exports hit a two-year peak in August. That comes after July inflation and retail sales numbers released last week beat forecasts, adding to signs that consumers had yet to rein in spending after the June vote to leave the European Union.

"The strength of post-Brexit data, much monetary easing already priced into the rates market and a generally weak dollar should allow pound to rally towards $1.3450," said Hans Redeker, head of currency strategy at Morgan Stanley. "It appears that the cheaper currency is already doing its job at attracting foreigners into sterling assets."

Sterling hit a three-decade low of $1.2798 on July 8 and had been languishing near those troughs earlier this month on expectations that the Bank of England may have to ease monetary policy further in coming months.

The central bank cut rates to a record low this month and restarted an asset-buying programme to cushion the economy from an expected post-Brexit slowdown. But after a slew of upbeat data, investors are reassessing the chances of further easing.

"Expectations for further BoE monetary easing have been scaled back, with markets only pricing in a 50 percent likelihood of a 15 basis point bank rate cut at the November meeting," said Viraj Patel, currency strategist at ING.

"This seems at odds with the monetary policy committee's dovish signals earlier this month ... (and) we prefer to use the latest sterling squeeze higher as an opportunity to reinitiate short positions."