LONDON: Sterling rose nearly 1 percent against the euro and the dollar on Monday, as speculators trimmed bets against the pound after European stock markets rose, giving a lift to currencies that tend to move in sync with riskier assets.
Earlier the pound had started the week on a soft note, trading near its lowest in 28 months against a basket of currencies, on persistent worries about Britain exiting the European Union.
Data released by Commodity Futures Trading Commission on Friday showed speculators had added to bets against the pound in the week to April 5, adding to the downward pressure on the currency.
"But with Brexit risks still dominating, any rally is likely fizzle out." Sterling was up 0.9 percent at $1.4245, while it was higher against the euro at 80 pence per euro. All of which left trade-weighted sterling at 84, well above a 28-month low of 83.3 hit last week.
Nevertheless, trade-weighted sterling has lost over 7 percent since the start of the year on worries that Britain will vote to leave the European Union in a referendum on June 23. Any sign that a Brexit is becoming more likely drives it lower.
Opponents of a Brexit say leaving the bloc would bode ill for a country whose trade deficit ballooned to 12 billion pounds, its widest in eight years, and has kept the focus on the huge current account deficit.
Britain's current account deficit grew to 7 percent of gross domestic product in the final quarter of last year.
"Most of the inflows offsetting the current account deficit is portfolio investment, that is, purchases of stocks and bonds," said Marshall Gittler, head of investment research at FXPrimus.
"That is likely to suffer on both accounts if the 'Leave' side wins. On the one hand, the UK stock markets probably won't like the uncertainty any more than the currency market will, and it may be hard to get foreigners to buy into companies based in Britain."
Opinion polls show the "In" and "Out" camps virtually tied before June's referendum. Bookmakers are still give Brexit a one-in-three chance.
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