Sterling surged over 1% against the euro and the dollar, as currency traders “giddily” bought the currency on confidence over a Brexit deal and growing bets the Bank of England would hike interest rates at a faster pace.
Climbing to 87.79p and $1.30, the currency has continued its volatile week. It had first slumped a few days ago on the view that a no-deal Brexit was looming into sight, only to surge again on hopes that sort of Brexit deal was on the cards.
The rise against the euro will be welcomed by many Irish firms selling across the Irish Sea because a stronger sterling can bolster profit margins from longstanding sales contracts in the UK.
“The pound has rallied hard across the session, boosted by progress in the Brexit camp and a tentative deal for the UK financial services sector,” said Fiona Cincotta, a senior market analyst at City Index.
“Encouraging words from Mark Carney over the health of the economy should a Brexit deal be achieved have also offered support.
“Warnings from Bank of England governor Mark Carney over a no-deal Brexit fell on deaf ears, as pound traders giddily brought into the idea that a Brexit deal is in sight and that a deal would steepen the path of interest rate rises.”
The bank, at its monetary policy meeting, had earlier kept UK interest rates pegged at 0.75%.
Josh Mahony at online broker IG said the prospect of the bank hiking rates, even if there is no deal, pushed sterling higher. “While economists typically call for a rate cut in times of economic strife, the potential decline in the pound means that the bank has to choose between boosting growth with a rate cut, or easing inflation with a hike,” he said.