Sterling strengthens further, passing $1.41

LONDON: The pound climbed as high as $1.411 on Monday, its strongest in more than two months, fuelled by a weaker dollar, improved economic outlook and market relief that a Scottish independence referendum looks unlikely in the near term.

Pro-independence parties won a majority in Scotland's parliament on Saturday, paving the way for a high-stakes political, legal and constitutional battle with British Prime Minister Boris Johnson over the future of the United Kingdom.

But the pound strengthened as market participants did not interpret this as a near-term risk and welcomed the fact that Scottish leader Nicola Sturgeon said that her first task was to deal with the COVID-19 pandemic.

"The market has basically judged that she's certainly not walking away with a very very strong mandate for a imminent referendum," said Ned Rumpeltin, head of European currency strategy at TD Securities.

Any second referendum on Scottish independence requires the approval of the UK government and Johnson has ruled this out, saying the country needs to focus on more pressing concerns such as the recovery from the pandemic.

At 1100 GMT, the pound was up 0.8% on the day at $1.40970, having crossed the key $1.40 level for the first time since February during the Asian session, and risen above $1.41 during the European morning session.

Versus the euro, it was up 0.7% at 86.315 pence per euro - which was only its strongest since last Thursday.

Analysts said the move in the pound versus the dollar was also due to dollar weakness, as the greenback dropped to a two-month low after a disappointing U.S. employment report.

Sterling's gains could also be a delayed reaction to the Bank of England raising its forecast for British economic growth at its meeting last week.

The Bank of England said Britain's economy would grow by the most since World War Two this year and slowed the pace of its trillion dollar bond-purchasing programme, but stressed it was not reversing its stimulus.

"We read the move as more of a legacy as the market is moving towards the Bank of England's bullish set of UK forecasts and now greater confidence in the soft dollar environment," ING FX strategists wrote in a note to clients.

MUFG said in a note, "We do not expect the developments to materially alter our outlook for the pound to continue to trade at stronger levels this year supported by the robust UK cyclical recovery and vastly diminished Brexit risks."

Elsewhere, CFTC positioning data showed that speculators reduced their net long position on the pound in the week to May 4.