Pound Emerges as Surprise Winner in Aftermath of U.S. Election

  • Sterling is best performer among major currencies this week
  • Traders reduced short bets as they wait for Brexit hearing

What Has the 'Special Relationship' Done for the Pound?

Investors’ concern about political shifts outside Britain is benefiting the pound.

Sterling has climbed against all of its 31 major peers since last Friday. It’s the surprise winner during the week of Donald Trump’s electoral upset in the U.S. that threw markets into turmoil as traders reappraised populist movements and inflation. The pound’s recent surge marks a reversal from last month, when it was the worst performer, trailing behind 150 peers.

As Britain’s currency heads for its best week in more than a year versus the euro, investors are cooling on the shared currency before votes that may demonstrate the strength of anti-establishment movements in the region, particularly Italy’s constitutional referendum.

“It’s very much about risk elsewhere: We have the Italian referendum in early December, we have very important elections in Germany and France,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “Maybe approaching the U.S. election, some people kept their long euro-sterling positions, and now we see this positioning being closed down,” he said, referring to wagers that the euro strengthens versus the pound.

Sterling climbed 0.3 percent to $1.2587 as of 3:57 p.m. in London and was headed for its second week of gains versus the greenback. It strengthened 0.5 percent to 86.31 pence per euro, set for a 3.1 percent increase against the single currency in the week, the biggest since July 2015.

Less Bearish

Traders reduced their short bets against the pound as they wait for a Supreme Court hearing scheduled for Dec. 5-8 that potentially may result in a ruling that delays Britain’s exit from the European Union.

Short-pound positions versus the dollar, or bets that the U.K. currency will fall, receded this month, after reaching a record-high level in October, according to Commodity Futures Trading Commission data from the week ended Nov. 1.

The pound completed its best week against the dollar since 2009 on Nov. 4, amid speculation Brexit will be delayed or watered down after a court ruled the government can’t start the process of leaving the EU without a vote from lawmakers. The currency is still down about 15 percent since the June 23 referendum.

“There is just a bigger theme now and we just don’t have a trigger for more pound downside here,” said Manuel Oliveri, a currency strategist at Credit Agricole SA’s corporate- and investment-banking unit in London. “Hard-Brexit fears were falling already, and you have a market that is positioned one-sided. When there’s no more impulse, these positions get taken off at some point.”

— With assistance by Charlotte Ryan

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