The pound drifted lower on Thursday after surging to a 11-week high overnight as investors consolidated positions before a key UK parliament debate next week. Growing expectations that Britain may be able to avoid a no-deal Brexit has fuelled a 2.3 percent rally in the pound this month, with much of the gains coming in the last few days.
But with no signs of how British Prime Minister Theresa May will break a parliamentary deadlock over Brexit, some market watchers are advising caution. On Thursday, the British currency slipped a fifth of a percent to $1.3045 after touching a 2 1/2-month high of $1.3094 in Asia. "There is still a lot of uncertainty and at current levels, the pound is reflecting the midway of two extreme scenarios, i.e. a no-deal Brexit and no Brexit," said Ricardo Evangelista, a senior analyst at ActivTrades based in London.
The pound was trading just below $1.3071, its 200-day moving average and a level it hasn't exceeded since May 2018. On Jan. 29, the U.K. parliament will debate May's proposed next steps and alternative plans MP's have put forward. They include delaying Britain's March 29 exit. For a factbox, On a trade-weighted index published by the Bank of England , the pound also hit a two-month high in the previous session but was around 10 percent below its Brexit referendum level in June 2016.
OPTIMISM The pound has gained the most this month among G10 currencies. The dollar and the euro have been dogged by concerns of a spreading slowdown in the global economy. "The driver behind the latest recovery in the pound has been expectations that a no-deal withdrawal can be avoided, and yesterday's headlines encouraged investors to add to those bets," said Charalambos Pissouros, a senior market analyst at JFD Brokers.
Data have also supported the pound this week. Strong employment figures suggested Britain's labor market remained robust despite an economic slowdown before Brexit. Banks' internal flows and data compiled by some of the biggest institutions - BNP Paribas, Royal Bank of Canada, Bank of America Merrill Lynch, Morgan Stanley and Scotiabank - indicated pound positions have become more neutral in recent days compared with big bearish bets in December.
Implied volatility gauges for the pound also extended their downward path, with one-month tenors falling to a two-month low on Thursday at around 10.5 vol, nearly half of levels seen in mid-November. Against the euro, the pound was flat at 87.13 pence.
Comments
Comments are closed.