April 16, 2018 / 8:34 AM / a year ago

Sterling heads towards highest since Brexit vote with seasonal bounce

LONDON (Reuters) - The pound pushed past the $1.43 mark on Monday and approached a post-Brexit referendum high as investors’ focus shifted to data that could cement expectations of a May interest rate increase and away from Britain’s military intervention in Syria.

FILE PHOTO: A British ten pound banknote is seen in a photo illustration taken March 16, 2016. REUTERS/Phil Noble/Illustration/File Photo

Traders also cited a seasonal rise in inward capital flows. Foreign companies increase dividend payments to British shareholders at this time of year, meaning sterling often performs well in April.

The United States, Britain and France struck Syria with missiles on Saturday, targeting chemical weapons facilities. The military action did not appear to hurt risk appetite as bond yields rose and the dollar fell.

Sterling rose as much as 0.7 percent on Monday to $1.4339, its highest since January, as the currency continued a two-week rally against a broadly weak dollar.

Since Britain signed a transition agreement last month to cover the 21-month period after it leaves the European Union, concerns about Brexit have abated as investors focus on the state of the UK economy before an expected rate rise in May.

Crucial data on British unemployment, wages and inflation numbers are due this week and have the potential to boost sterling further.

Markets expect the Bank of England to raise interest rates by 25 basis points next month as it tries to curb inflation.

“With markets almost fully discounting a BoE rate hike, this week’s run of monthly indicators are anticipated to give that hike a green light,” Marc Ostwald, a global strategist at ADM Investor Services International in London, said in a note.

To view a graphic on British economic data suprises to downside, click: reut.rs/2JP0zbW

Some investors remain sceptical about expectations of policy tightening, citing lingering economic uncertainties.

They say it is mainly the broad weakness of the dollar, linked to a trade dispute between the United States and China, that is keeping sterling above $1.40.

Against the euro, sterling rose 0.3 percent to 86.27 pence, its highest against the single currency since late May 2017.

“A softer Brexit and May rate hike are somewhat factored in. However, further flow factors should continue to benefit (sterling),” said Neil Jones, head of FX hedge fund sales at Mizuho.

Additional reporting by Tommy Wilkes; Editing by Andrew Roche

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