Pound Gains as EU Said to Be Softening Brexit Transition Stance

  • Sterling rises to 10-day high, boosted by Politico report
  • Brexit transition only thing on investors’ minds: ING

The pound strengthened amid broad dollar weakness and a report that the European Union is considering softening its stance on censuring Britain during the Brexit transition period.

Sterling extended its advance against the greenback for a fourth day, touching a 10-day high, and climbed versus most of its Group-of-10 peers. The currency rose after Politico said the European Council’s Brexit working party was watering down the mechanism to sanction the U.K. if it breaks EU rules during the Brexit transition phase. No decision has yet been taken, two EU government officials familiar with the matter said on condition of anonymity in response to the report.

“There is only one thing on the minds of sterling investors right now, and that’s clarity over a Brexit transition deal,” said Viraj Patel, a currency strategist at ING. “The period leading up to the March 22-23 EU leaders summit will be noisy, but the pound’s relative resilience is telling of a different Brexit trading environment to what we saw in 2017.”

Three-month pound volatility, which takes in the March EU summit and the Bank of England decision in May, increased on Thursday. The market prices an almost 80 percent chance that the central bank will raise interest rates at the meeting after the BOE said last week it may raise borrowing costs sooner and faster than previously expected.

The pound rose as much as 0.6 percent to $1.4077, taking its advance this week to 1.7 percent. It strengthened 0.2 percent to 88.80 pence per euro. The yield on U.K. 10-year government bonds increased three basis points to 1.67 percent.

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