The pound traded just under $1.31 in London to be on track to post its best week in more than a year as Theresa May, UK prime minister, faced growing pressure to rule out a no-deal Brexit.
Sterling rose 0.5 per cent to $1.3139, its highest since the beginning of November, before paring its early gains to $1.3081. The currency has rallied 2 per cent this week, the sharpest rise since late January 2018.
The British currency has strengthened this week as the risk of a no-deal Brexit has waned, analysts have said.
Reports said that Theresa May’s government had secured the backing of Northern Ireland’s Democratic Unionist party — on which it relies for a majority in the House of Commons — for alternative proposals on arrangements covering the Irish border during the UK’s transition from the EU.
“Although there are still not enough votes for Mrs May’s deal to be passed in parliament, with many MPs shifting away from the notion of no deal, this materially diminishes the odds of such a scenario and in turn supports the oversold and heavily under-valued (on a medium-term basis) sterling,” said Petr Krpata, ING’s chief Emea foreign exchange strategist. “These dynamics suggest more upside” to sterling on Friday.
Business leaders, including the chief executive of Airbus, have piled on pressure by warning of the possible impact of a no-deal Brexit on their businesses.
Analysts at BMO Capital Markets warned this week that the currency market is “grossly underestimating the chances of the UK exiting the EU on March 29 without a deal”. The bank still estimates a roughly 40 per cent probability of a no-deal scenario.
BMO added that without a clear consensus among MPs on how to proceed with Brexit, the low $1.30 level in the pound-dollar pair offers an “attractive” selling opportunity, even if the UK pushes back the Brexit date.
Sterling has rebounded by more than 5 per cent since striking $1.2475 in mid-December.
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