January 20, 2017 / 10:29 AM / in a year

Pound limps away from frantic week higher

LONDON (Reuters) - Britain’s pound emerged from one of its most turbulent weeks in decades with its strongest gain against the dollar since the start of December.

Sterling had recovered from the early disappointment on Friday of the weakest UK retail sales figures in almost five years, to stand at $1.2329 by the time Donald Trump ended his first speech as U.S. President.

That was fractionally lower on the day, but over 1 percent higher than the $1.2175 it had started the week at, having also made almost 1 percent on the euro..

And what a wild week it has been.

Prime Minister Theresa May’s most detailed speech yet on Britain’s approach to leaving the European Union, and signs that banks are readying to shift staff from London, have given investors a somewhat clearer view of what Brexit is likely to look like.

The pound took two major beatings on Monday and Wednesday, but in between saw a 3 percent surge, its biggest leap since the 1990s.

RBC’s head of G10 FX Strategy Adam Cole said that jump had made the pound one of the week’s outperformers and shaken out some of the short positions that had built up.

“We put out a positive sterling recommendation at the start of the week but we have taken profit on that now,” Cole said.

“It is likely to go quiet now until after Article 50 is triggered and will need the data to turn from positive to negative or the politics to get ugly before we see another leg lower.”

Article 50 refers to the EU treaty clause that Britain needs to invoke to formally launch a two-year divorce process. May has said she will do this by the end of March.

Data has been broadly mixed this week, with upbeat wage growth figures offset by weaker hiring and investment numbers.

Official national retail sales released on Friday saw the biggest fall since April 2012, dropping 1.9 percent month-on-month in December, which was far below economists’ forecasts in a Reuters poll for a 0.1 percent decline.

“We have had a big slide in sterling and that is bound to start showing up in consumer confidence. Our view is that this is going to be a slow burner,” said Unicredit’s global head of FX strategy Vasileios Gkionakis.

“At current levels I retain a bearish bias, on the fundamental front nothing has really changed,” he added, saying the political noise was also likely to increase as Britain’s government prepares to trigger the start of the EU exit process.

That will move a step nearer next week when Britain’s top court decides whether parliament has to give its approval for invoking Article 50.

Online spreadbetter Betfair has a 90 percent probability that the Supreme Court will uphold a ruling by a lower court that parliament should get a vote on the matter.

Editing by Patrick Graham; Editing by Mark Trevelyan

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