Pound Climbs Most in Three Weeks as Gains Seen to Be Fleeting

  • Sterling gains versus dollar, euro as riskier assets rally
  • Three-month risk reversals in pound-dollar reach record

The pound climbed the most in more than three weeks against the dollar, extending gains into a second day with stock indexes as demand for riskier assets improved.

Sterling advanced against the euro, strengthening from a level last week that was its weakest in almost two years. While the U.K. currency climbed against 14 of its 16 major peers, Credit Agricole SA’s head of Group-of-10 currency research said the gains are likely to fleeting as Tuesday’s March inflation data is forecast to show an uptick in the annual rate of just 0.1 percentage point, and Bank of England officials announce their policy decision two days later.

Sterling is still weaker against all its major peers this year as a June 23 referendum on European Union membership has sparked concern that it could erode the stability of the U.K.’s economic and political future. Options markets are suggesting there are more declines to come.

“Investors will remain cautious ahead of the inflation release and the BOE meeting looking for indications that the market uncertainty ahead of the EU referendum has clouded the BOE outlook for the economy some more,” said Valentin Marinov from Credit Agricole’s corporate and investment-banking unit in London. Monday’s pound gain seems to lack fundamental drivers, he said.

The pound climbed 0.9 percent to $1.4261 as of 4:27 p.m. London time, the most since March 17. Sterling strengthened 0.7 percent to 80.11 pence per euro, after reaching 81.17 pence on April 7, the weakest since June 2014. The Stoxx Europe 600 Index of shares rose 0.4 percent, adding to a 1.2 percent jump at the end of last week.

Inflation accelerated to 0.4 percent annually in March from 0.3 percent in February, according to the median estimate in a Bloomberg survey of analysts before the data are released.

Options Signals

The premium for three-month options protecting against sterling losses over contracts betting on a gain versus the dollar reached a record Monday in data going back to 2003.

“It seems like a rapid shift in sentiment,” said Esther Reichelt, a Frankfurt-based currency strategist at Commerzbank AG. “Euro weakness across the board, pound stronger. Positioning seems quite thin so the movements might be exaggerated. I expect to see some correction.”

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