Pound Climbs to Highest This Month as Brexit Risk Seen Waning

Weighing the Economic Risks of a 'Brexit'
  • Sterling strengthens even as U.K. retail sales slide
  • Currency's resilience partly down to `Brexit exhaustion': ING

The pound rose to its highest level this month versus the dollar as analysts said the risk of the U.K. potentially voting to leave the European Union in a June referendum may be overdone.

Sterling gained versus most of its 16 major peers even after data showed a bigger-than-forecast drop in U.K. retail sales. The pound is finding some respite this week with recent polls suggesting a stronger lead for a vote for the U.K. to remain in the EU in the June 23 referendum. The probability of Britain voting to leave the bloc dropped to 20 percent on Thursday, according to the Number Cruncher Politics Referendum Forecast.

“A soft dollar, a constructive global risk environment and possible Brexit exhaustion” are supporting sterling, said Viraj Patel, a foreign-exchange strategist at ING Groep NV in London.

The pound was little changed at $1.4330 as of 4:16 p.m. London time after climbing to $1.4440, the highest since March 30. Sterling was at 78.80 pence per euro, halting a four-day advance.

Data showed U.K. retail sales excluding auto fuel fell 1.6 percent from February, the most since January 2014, with total sales dropping 1.3 percent. Both far exceeded the modest declines seen in a Bloomberg survey.

Brexit Reaction

“Most of the reactions to sterling are due to Brexit,” said Mikael Olai Milhøj, an analyst at Danske Bank A/S in Copenhagen. “Every time we get news saying that it’s more likely that the U.K. will stay in the EU, we see some strengthening. Despite the fact that we had weaker retail sales, still the pound strengthened.”

U.K. government bonds declined, pushing the 10-year gilt yield to the highest level in more than two months, as the Debt Management Office raised this fiscal year’s planned gilt issuance to 131.5 billion pounds from 129.4 billion pounds.

The revision was made after a budget report for March, the final month of the previous fiscal year, showed the cash measure used to calculate how much the Treasury needs to borrow in the financial markets overshot government forecasts.

The benchmark 10-year gilt yield climbed 10 basis points, or 0.1 percentage point, to 1.58 percent, having touched 1.60 percent, the highest since Feb. 2. The 2 percent security due in September 2025 dropped 0.89, or 8.90 pounds per 1,000-pound face amount, to 103.63.

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