LONDON (Reuters) - Sterling climbed to six-week high against the dollar on Wednesday and scored a third straight gain against the euro on hopes that Theresa May’s first meeting with Donald Trump would pave the way for a rapid U.S. trade deal.
For dealers it was a welcome break from more than a week of intense Brexit developments that has given a degree of clarity on how the initial steps of the complex process will run.
After strong morning, an afternoon burst of buying took the pound up past $1.26 for the first since Dec. 14 and it reached $1.2625 before running out of steam.
It gained 0.6 percent against both the euro and the yen, to 85.11 pence per euro and 143.33 yen and respective near three- and two-week highs.
“The market is taking off shorts (on sterling) on the view that Brexit uncertainty won’t rise any further at the moment,” Crédit Agricole FX Strategist Manuel Oliveri said.
“It is allowing focus to be a bit more on external developments and the headlines of May heading to the meeting with Trump at the weekend are proving supportive.”
Before then, Britain will get Q4 GDP data on Thursday, expected to show little evidence yet of Brexit-related trouble. The government is also due to publish legislation seeking parliament’s approval to start the formal process.
“I set out that bold plan for a global Britain last week and I recognise there is an appetite in this house to see that plan set out in a white paper,” May told parliament, confirming that she would now publish the report having previously refused.
Germany’s finance minister reiterated the EU’s warnings to Britain not to try to turn itself into a tax haven to woo companies after it leaves the EU, saying any such attempt would go “awry”.
One of Deutsche Bank’s London analysts meanwhile said sterling’s role as a global reserve currency was declining, predicting it would be less widely used as Britain leaves the EU and that China has drastically cut its holdings.
“To the extent that reserves serve as backstops against currency stress, rather than as sovereign wealth, the pound’s diminishing role in international capital flows post-Brexit should permanently reduce its reserve status,” the report said.
Additional reporting by Dhara Ranasinghe; Editing by Tom Heneghan and Alison Williams
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