LONDON: The pound rose to a seven-day high on Thursday as traders strengthened bets on an interest rate hike this summer, but concerns about a crucial Brexit meeting on Friday kept gains in check.
After a feeble start to 2018, the British economy is showing tentative signs of a recovery with surveys for the manufacturing, construction and services sectors this week beating expectations.
That has brought some respite for sterling after weeks of losses driven by a strong dollar and worries about whether Britain can secure a trade deal with the European Union before it leaves the bloc next March.
The pound rose to an intraday high of $1.3267 on Thursday after Bank of England Governor Mark Carney said inflation was rising towards target and that he was confident an economic slowdown was temporary.
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Carney said the central bank was doing everything it could to prepare for the very unlikely event of a cliff-edge Brexit, but that the EU needed to do more.
His comments did little to lift sterling against the euro, however, and the pound traded down 0.1 percent at 88.21 pence.
The euro was lifted by strong German industrial data and a Bloomberg report that some European Central Bank members viewed end-2019 as too late for an interest rate hike.
The government is preparing for a meeting on Friday at which Prime Minister Theresa May will make another attempt to tackle deep divisions within her cabinet over Brexit.
With less than nine months until Britain exits the bloc and no trade agreement secured, there is concern that the meeting risks undermining the stability of May’s government.
“The pound has failed to benefit so far from the improving cyclical momentum in the UK. Heightened Brexit uncertainty appears to be holding back (its) upside potential …in the near term,” said the note.
Joining a growing list of concerned British companies, its biggest carmaker Jaguar Land Rover said a “hard Brexit” – one without a trade deal – would cost it 1.2 billion pounds ($1.59 billion) a year.
The pound has traded within tight ranges and volatility has fallen, possibly because investors have already priced in the risk of a hard Brexit – though it may also indicate they are preferring to wait on the sidelines until signs of how the divorce will pan out become clearer.
Source: Brecorder
