LONDON (Reuters) - Sterling rebounded on Monday, having slid on Friday after a speech by Prime Minister Theresa May failed to offer the kind of detail investors had been looking for to remove political uncertainty that has kept the currency under pressure.
Data released late on Friday showed speculators had cut their bets against the pound to the lowest level in almost two years in the week to last Tuesday after the Bank of England signalled it would raise interest rates from record lows in the “coming months”. [IMM/FX]
The pound put in its joint-weakest performance against the euro in seven weeks on Friday, with investors disappointed by the lack of detail on how Britain would ensure that it kept preferential access to the EU’s single market after it leaves the bloc.
Prime Minister May set out a plan to retain full access to the EU’s single market in a two-year transitional period, but her proposals for meeting Britain’s financial obligations and for protecting EU citizens’ rights fell short of what the European Union wanted.
“There was some initial disappointment that PM May did not go further in her speech in an attempt to accelerate Brexit negotiations,” said MUFG currency analyst Lee Hardman.
“Securing a transitional agreement could help to strengthen the pound and dampen the potential negative UK economic fallout.”
Traders are now focused on the fourth round of Brexit talks starting in Brussels on Monday. Chief EU negotiator Michel Barnier said after May’s speech that it was “constructive” but that he wanted to hear firm offers from Britain.
The pound rose 0.7 percent to 87.97 pence per euro on Monday, with the single currency weakened by the German election results, which showed a surge in support for the far right and put the country on course for what could be months of coalition talks.
It was also a quarter of a percent stronger against the dollar at $1.3534.
Hardman added that protracted discussions to form a coalition government in Germany could act as a near-term dampener on Brexit progress, which could keep sterling pressured.
Investors are also focused on looming economic data releases, such as Wednesday’s GDP numbers, to see whether bets on a Bank of England rate increase in November are justified.
“Incoming data needs to remain robust to prevent rate disappointment going forward,” said Julius Baer economist David Alexander Meier. “Progress in the Brexit talks would (also) help.”
Reporting by Jemima Kelly; Editing by David Goodman