LONDON (Reuters) - Sterling trimmed earlier gains on Monday as punters took profits after a rally lifted the British currency to six-week highs thanks to surprisingly strong data and hopes that Britain will not crash out of the European Union without a deal.
Expectations of more political uncertainty also weakened the British currency after John Bercow, Speaker of Britain’s House of Commons, announced that he would be standing down.
“The Speaker has definitely been seen by many as supportive of those opposing No Deal, so anyone coming in to a post where neutrality is so important would have to be less supportive,” said John Marley, a senior FX consultant at FX risk management specialist SmartCurrencyBusiness.
“On that basis No Deal chances just got a little bit stronger, hence the drop in sterling.”
Against the dollar, the pound trimmed gains to stand up 0.3% on the day at $1.2323. It jumped to a six-week high of $1.2385 in London trading after economic data beat forecasts.
Brexit will be delayed again, according to a Reuters poll of economists that continued to put the chance of Britain and the European Union parting ways without agreeing a deal at 35%, despite the UK parliament attempting to block a no-deal exit.
Earlier, the pound received a rare boost from surprisingly strong economic data.
Economic output in July alone was 0.3% higher than in June, the Office for National Statistics said, marking the biggest rise since January and topping all forecasts in a Reuters poll of economists that had pointed to a 0.1% increase.
Versus the euro, it also gained 0.25% to 89.48 pence.
The pound has been especially volatile since last week after lawmakers returned to parliament.
Prime Minister Boris Johnson last week failed to win enough support from lawmakers to call an early election and parliament also approved a bill which aims to block a no-deal Brexit at the end of October. That would force him to seek a delay to Brexit.
“The threat of a no-deal Brexit has somewhat receded but has not gone away completely, which is reflected around current levels,” said Esther Maria Reichelt, a strategist at Commerzbank.
The political uncertainty prompted hedge funds to unwind some of their negative bets against the British currency.
Speculative short positions on the pound slipped in the latest week to 84,959, according to data from the U.S. Commodity Futures Trading Commission.
Graphic: GBP Positions, here
Reporting by Saikat Chatterjee; Editing by Giles Elgood