Investors’ concerns about political shifts in the eurozone and Donald Trump’s shock election victory have benefited the pound as it became the best performing currency this week.
Sterling has climbed against all of major currencies since last Friday and broke the $1.26 barrier against the dollar for the first time in five weeks. It is also its highest level since the “flash crash” that caused a massive drop in the currency’s value in early October.
Trump election success on Wednesday seem to have shunted concern over Britain’s future outside of the EU as investors shifted their focus to political events in the eurozone, including next month's referendum in Italy, and Trump's election success.
The pound hit an intraday high of $1.2673 and is now on course for its best fortnightly performance in eight years. The currency has also gained ground against the euro, trading at €1.161.
This marks a reversal from October when the currency became the worst performer trailing behind 150 currencies.
Tony Cross, analyst at TopTradr, said fears of European political instability are pushing sterling up.
“Granted it’s starting from a low base given the beating the currency took, both from the shock Brexit vote and the flash crash just over a month ago, but this is increasingly looking as if it’s been overdone.”
“Critically there’s growing concern that we’ll see a rising tide of nationalism across continental Europe, with French elections in the New Year a real cause for concern, pushing EUR/GBP down to below 0.8700 for the first time since late September.”
Alexandra Russell-Oliver, Caxton FX analyst, suggested sterling is also benefitting from the prospect of the US and the UK remaining close.
She said: “The pound may be receiving additional support as President-elect Trump emphasises that the US and the UK will continue to enjoy a “very special” relationship.”
President-elect Donald Trump on Thursday has invited Theresa May to visit Washington in a phone call in which both stressed the importance of America and Britain relations.
The rising pound send London shares sliding with Britain’s FTSE 100 losing 1 per cent dragged down by international firms who earn in dollars.
“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 told Bloomberg.
