LONDON (Reuters) - The pound advanced broadly on Friday, notching up its biggest daily rise versus the euro in nearly five months, as a combination of news and decent data provided enough ammunition to speculators to buy the struggling British currency.
After being hit by growing concerns of Britain crashing out of the European Union without a deal by Oct. 31 after Boris Johnson became prime minister last month, the pound saw a brief reprieve this week.
GRAPHIC: Trade-weighted sterling since Brexit vote - here
The pound advanced to an eight-day high versus the greenback and also jumped 1% against the euro currency, its biggest single day rise since late March.
Though traders are wary of seeing too much upside for the currency before the British Parliament returns from recess in September, investors take as a positive sign a growing opposition from political parties to Johnson’s promise to take Britain out of the EU with or without a deal.
Comments from European Central Bank policymakers hinting at more policy stimulus also depressed European government bond yields and increased the appeal of British debt.
“This is an odd week for the pound especially in the latter half given the weakness in the euro after the Olli Rehn comments yesterday which has widened spreads,” said Kenneth Broux, a strategist at Societe Generale in London.
The European Central Bank’s Rehn told the Wall Street Journal on Thursday that a significant easing package was needed in September, fuelling expectations for more ECB easing and adding momentum to a huge bond market rally in Europe.
Rehn’s comments pushed out spreads between British and German comparable 10-year bond yields to near two-month highs at 116 bps.
Economic data has also been favourable this week.
British retail sales unexpectedly expanded in July and signalled that consumers were taking the prospect of Brexit in their stride for now, helped by firm wage data and modest inflation pressures, according to data released earlier this week.
“This suggests consumer spending is still holding up and still supporting the economy even though overall output contracted in the second quarter,” said Marshall Gittler, chief strategist at ACLS Global.
“It ties in with the relatively high wage growth that we saw earlier in the week.”
Against the euro, the pound scaled an 11-day high, up 1% at 90.91 pence. It retraced some of those gains to stand 0.8% up on the day at 91.18 pence.
Versus the dollar, the pound rose for a second consecutive day, up 0.7% at $1.2168 and is poised for its biggest weekly rise since late June.
While derivatives indicate market players may be trimming back some short sterling positions, the currency’s prospects remain clouded by the risk of Britain exiting the European Union without a divorce agreement.
GRAPHIC: World FX rates in 2019 - here
Reporting by Saikat Chatterjee; Editing by Keith Weir and Frances Kerry