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Have all the sterling bears headed off to the pub for the day?

After a sluggish start to the day, the pound has been on a tear over the past two hours, reversing a slight loss and climbing 0.6 per cent to hit a session high of $1.2548.

General dollar weakness could explain some of the sudden burst of sterling strength. The DXY dollar is trading lower after New York Federal Reserve Bank president William Dudley said the US central bank could begin to scale down its $4.5tn balance later this year and echoed other Fed officials’ comments that there is no hurry to raise interest rates.

The late-day gain helps put the pound back above its 50-day moving average of $1.2426, and the currency is set to end the quarter 1.65 per cent higher against the greenback – making this its first quarterly gain since June 2015.

Sterling has had an uneven week. It strengthened to as much as $1.2615 on Monday and traded as low as $1.2377 on Wednesday after the UK formally notified Brussels of its intention to leave the EU.

With the political shock of Brexit now largely priced in, analysts argued that the pound will be driven by economic data going forward. On this front, the news has so far been relatively positive.

“The one currency that looks a secular contrarian long is sterling”, analysts at Bank of America Merrill Lynch said on Friday. “Brexit threatened a run down in sterling versus the US dollar toward its all-time low of 1.08 reached in 1985; Brexit is now much more priced-in.”

Copyright The Financial Times Limited 2017. All rights reserved.
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