The U.K. currency may recoup about half of its more than 10 percent decline from pre-Brexit vote levels if there is a divorce deal, according to a Bloomberg survey last month. Trader positioning on the currency is heavily short as missed deadlines in negotiations have increased concern in recent months that there may be no deal.
“Brexit deal optimism remains the flavor of the month, even ‘trumping’ the market’s love for the dollar,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA. “The consensus is that a deal will be reached, maybe this month or early December, and so positioning is adjusting.”
Sterling was 0.3 percent stronger at $1.3011, after earlier rallying as much as 0.7 percent. The currency advanced 0.3 percent to 87.51 pence per euro. The yield on U.K. 10-year government bonds climbed two basis points to 1.51 percent.
The pound held gains even as key economic data came in weaker than expected, as the market opted to focus instead on signs of progress in Brexit talks.
The currency strengthened Monday following a Sunday Times report that Prime Minister Theresa May has secured concessions from Brussels to let her keep all of Britain in a customs union with the European Union. The currency stayed higher even after a report showed the services sector slowed in October. Sterling could “blast through” $1.35 within two days if a divorce is agreed between Britain and the bloc, according to Mizuho Bank Ltd.
Source: Bloomberg Finance L.P.
Charts: Used with permission form Bloomberg Finance L.P.
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