Sterling steadied against the dollar and euro on Friday, ending the week at much the same levels it started it at, with traders keen to see new developments on Brexit negotiations before taking on new positions on the British currency.
Economic data released over the week have pointed to the economy picking up speed at the end of last year, with businesses growing more optimistic about the year ahead. But that has had little impact on the currency.
Numbers released on Friday showing Britain’s economic productivity rose at its fastest rate in over six years during the three months to the end of September – though in absolute terms still barely above its level of nearly a decade ago – did not give the pound any additional support.
It was trading down 0.2 percent on the day at $1.3533 . It had hit a 3-1/2-month high of $1.3614 on Wednesday, less than half a cent away from its highest levels since the Brexit vote aftermath, but traders said it needed new catalysts before it could break any higher.
Sterling has climbed almost 4 percent against the dollar in the past two months.
“Despite appearing to be the start of an appreciation trend, we believe that the sterling rally will peter out in the coming months,” wrote analysts at BMI Research in a note to clients. “We expect a pull-back towards the $1.30 level and sideways trading within a $1.30-1.35 band. On the other hand, if sterling were to break above long-term support around $1.40, this would be significant and force a fundamental re-think of our forecasts,” they added.
A Reuters poll of currency strategists on Friday showed the pound is expected to mostly hold steady against both a shaky dollar and the firming euro this year, but much will hinge on progress in Britain’s talks with Brussels on its withdrawal from the European Union.
The strategists, who were polled in the first week of 2018, were not brimming with optimism on how the next stage of talks will go, but most do not think the pound is set for another major fall, either.
Against the euro, the pound traded flat at 88.96 pence .
“The pound’s ongoing resilience continues to support our view from over a year ago that a lot of bad news (has) already (been) priced in,” said MUFG currency anaylsts.
“An important positive implication for the pound is that the risk of a more disorderly ‘No Deal’ Brexit outcome has diminished and the pound should strengthen if fears over a more disruptive and harder Brexit outcome do not materialise.” Source: Reuters