Sterling posts strong weekly gains as focus turns to British growth

LONDON (Reuters) - Sterling slipped from a five-week high on Friday but remained on track for its strongest week since mid-November, with investors setting aside their Brexit concerns to focus instead on signs the British economy is growing robustly.

A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand October 12, 2010. REUTERS/Sukree Sukplang/File Photo

Consumer confidence showed its biggest monthly improvement since last summer in January, data showed, adding to a stream of indicators suggesting the Brexit vote has yet to unsettle the households driving Britain’s economy.

Figures on Thursday showed the economy kept up its strong pace of growth in the last quarter of 2016, indicating no slowdown at all since the June 23 vote to leave the European Union, with the economy actually picking up pace in the second half of the year.

That data helped sterling hit a five-week high against the Bank of England’s trade-weighted index, and though it inched down 0.1 percent on Friday, it was still on track for a 2 percent weekly climb.

Against the dollar, it slipped 0.2 percent to $1.2565 on Friday but was still up more than 2 percent for the week. Against the euro, the pound fell 0.4 percent but was also up almost 2 percent since Monday.

“For the UK economy, it has clearly been a case of business as usual so far, which brings into question whether the emergency easing that the BoE delivered after the initial false signal sent by the collapse in business confidence was necessary,” MUFG analyst Lee Hardman wrote in a research note.

“We remain optimistic that the UK economy will slow only modestly in the year ahead and continue to defy fears over a sharper slowdown. It supports our outlook for the pound to outperform more downbeat consensus expectations.”

The key focus for currency traders since Britain voted to leave the EU has been how that departure plays out and whether it will be a “hard” exit in which Britain leaves the European single market or a “softer” one retaining greater access to the trading bloc.

After Prime Minister Theresa May said last week Britain would indeed be departing the single market and the Supreme Court ruled this week that parliament must approve the triggering of Article 50, it appears some questions have been answered and investors are turning once again to fundamentals.

They are looking ahead to the first BoE “Super Thursday” of the year next week, when the central bank, which cut rates to a record low of 0.25 percent in the aftermath of the EU referendum, presents its quarterly inflation report along with its decision on monetary policy.

Inflation has accelerated as sterling has shed 12 percent since the Brexit vote on a trade-weighted basis. This has led to market talk that the BoE will take a more hawkish tilt and even signal that it is moving closer to raising rates from their current record low of 0.25 percent.

But a Reuters poll on Monday found most economists expect the BoE to leave its rates and other stimulus measures unchanged at least until 2019, even though it is likely to raise its 2017 growth forecast again next week.

Focus was also on Prime Minister’s visit to the United States to meet U.S. President Donald Trump.

“We think that market focus will be on any signals regarding the possibility of a U.S.-UK trade deal,” said IronFX currency analyst Charalambos Pissouros. “If the two parties send optimistic messages with regards to this prospect, sterling could extend its recent gains.”

Editing by Hugh Lawson