Pound shakes off economic woes as traders set high shock bar

35 minutes ago

Charlotte Ryan, Bloomberg



London – Sterling is becoming immune to bad news.

The currency has rallied more than 2% against the dollar in
the past two weeks, despite several pieces of disappointing economic
data. That included gains on days when reports showed a weak pace of
UK services growth and falling property prices.

The country’s economic data has been underwhelming for months,
according to the Citi Economic Surprise Index, and little progress has
been made in Brexit

talks with the European Union. Despite this, sterling is up about 6% this year and breached $1.30 on Tuesday.

“The starting point for sterling is so low that it may need
disastrous news for it to fall significantly lower,” said

Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander
SA. “The selloff since late October 2015 suggests that it has already
priced in worse economic data than we have so far seen.”

While

data from mortgage lender Halifax on Thursday showed house-price growth
picked up in the three months through August from a year earlier, it
remained close to a four-year low. Sterling was unmoved, holding steady
against the dollar after gains of 0.7% this week.

As investor attention turns toward the European Central Bank (ECB)decision
on Thursday, dovish comments from Federal Reserve policy makers and a
parliamentary vote on Brexit legislation, traders are reconsidering
their sterling positions, said Rabobank International’s head of currency
strategy

Jane Foley.

“The market is very short of sterling, meaning that it’s more likely
to move on good news,” said Foley. “The second reading of the EU repeal
bill will be watched closely, with sterling likely to push a little
higher if there is no rebellion from Tory ‘remainers’.”

UK Prime Minister Theresa May faces a challenge in Parliament to
the bill to transfer EU law into UK legislation from the opposition
Labour Party. Labour’s stance has also renewed sentiment among traders
on the potential for a more constructive Brexit, according to Canadian
Imperial Bank of Commerce strategist

Jeremy Stretch.

The

options market shows investors have pared bearish bets on the pound in
the past two weeks. But the nerves of traders could soon be tested, with
time running out for Britain to meet an October deadline to achieve
progress in the EU talks and move onto discussing a future trade
relationship.

“It’s not a change in story,” Stretch said. “Just another periodic rise that should eventually give way to selling on rallies.”

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