Pound Tallies Weekly Advance as Economy Shrugs Off Brexit Blues

Updated on
  • Sterling is the strongest performer among 31 major peers
  • Consumer confidence bucks Brexit, rising most in three years

The pound advanced for the first week since mid-July versus the euro as economic data continue defying post-Brexit expectations for a slowdown.

Sterling climbed against all 31 of its major peers this week, capped by data on Friday showing an index of U.K. consumer confidence rose in August by the most in more than three years. That added to a spate of better-than-expected economic data released this month suggesting that the immediate impact of the country’s decision to leave the European Union is not as bad as many had predicted.

“Sterling has reacted, the outlook certainly isn’t as panicked as people thought it could have been,” Jane Foley, a senior currency strategist at Rabobank International in London, said in reference to recent data. “Over the medium- and longer-term, there are still significant risks for the U.K. economy, particularly from investment growth.”

Brexit Resilience

The first reports to show the impact of Brexit indicated some resilience in the U.K. economy. An index of consumer sentiment by YouGov and the Centre for Economics and Business Research jumped to 109.8 from 106.6 in July, which was a three-year low. It followed retail-sales figures and unemployment benefit claims last week that beat economist expectations.

The pound strengthened 0.2 percent to 85.40 pence per euro as of 4:17 p.m in London, putting its advance for the week at 1.5 percent.

The U.K. currency was at $1.3194, up 0.9 percent since Aug. 19. Earlier on Friday it fell as much as 0.4 percent and climbed 0.7 percent as the market digested remarks from Federal Reserve Chair Janet Yellen at a symposium in Jackson Hole, Wyoming. She said the central bank would take a gradual approach to raising interest rates.

Britain’s 10-year government-bond yields fell three basis points, or 0.03 percentage point, to 0.54 percent. The 2 percent gilt due in September 2025 rose 0.295, or 2.95 pounds per 1,000-pound face amount, to 112.845.

The pound’s rally may be short-lived, as U.K. politicians come back from their summer recess and the complexities of trade negotiations with the EU become apparent, according to Foley.

“Sterling is a vulnerable currency,” she said. “We’ve got to very be wary of being over-optimistic. I think we’ve got to keep looking over our shoulders and anticipating that there will still be some negative headwinds resulting from political uncertainty connected with Brexit.”