Pound in Best Run in 2016 as Investors Question `Brexit' Trades

Who Will Lose the Most Post ‘Brexit’?
  • Manufacturing slows as consumer prices in euro area drop
  • Sterling may extend gains before ECB meeting: Credit Agricole

The pound strengthened for a fourth day versus the euro, its longest run of gains since November, as investors questioned the extent of declines driven by concern over a possible British exit from the European Union.

Sterling was little changed against the dollar. While Markit Economics said U.K. manufacturing expanded last month at the slowest pace in almost three years, that was preceded by data which showed factories in the euro area cut prices at the fastest pace in almost three years in February. That added to evidence that the 19-nation economy may need extra stimulus when European Central Bank policy makers meet next week.

Britain’s currency has still declined more than 5 percent against both the dollar and the euro this year amid the prospect of the country voting to leave the EU in a referendum in June. Other assets have fared better, with U.K. government bonds posting the biggest returns this year among developed-country markets tracked in Bloomberg World Bond Indexes, while the FTSE 100 Index of shares climbed to a two-month high Tuesday.

“If you take a step away from the ‘Brexit’ risk and focus on the fundamentals, the pound looks oversold,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London. “If anything, especially against the euro, there is scope for further outperformance going into the ECB meeting.”

The pound advanced 0.2 percent to 77.97 pence per euro as of 4:05 p.m. London time. Sterling’s four-day rally is its longest since the period ended Nov. 11. The U.K. currency was at $1.3922, having climbed 0.3 percent Monday.

While sterling may decline in the lead up to the referendum, the pound would benefit from a decision to stay in the EU, appreciating to 73 pence per euro by the end of year, analysts at UBS Group AG including New York-based Jeff Greenberg wrote in a client note dated Feb. 28.

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