GBP/USD Hits 3-Month High but Return of Brexit Boogeyman Will Cap Gains By Investing.com



© Reuters.

By Yasin Ebrahim

Investing.com – The pound soared to a three-month high against the dollar, riding on the coattails of reopening optimism, but the end of pandemic will bring the focus back on the Brexit effects that could halt cable’s run higher, according to an FX expert.

rose 0.39% to $1.4188. 

“Corona euphoria is continuing, but we remain Sterling sceptical,” Commerzbank (DE:) FX, EM Analysts You-Na Park-Heger said in a note. But with the end of the pandemic, market attention “will increasingly focus on the (negative) Brexit effects again, […] we see little scope for further Sterling appreciation,” Heger added.

The success of the vaccine rollout, with about 55% having already received the first dose, keeps the U.K. on track to lift all Covid-19 restrictions in about one month, and has helped strengthened the recovery, particularly in the labor market.

The U.K. reported Wednesday 46,000 job gains in March, taking the total to 102,000 jobs from the trough in January, suggesting the U.K. “may finally be turning a corner with further reopening effects ahead,” Scotiabank said in a note.

The optimism over the reopening has shielded sterling from remarks from Bank of England members, who in recent days have attempted to keep investor expectations grounded.

“Not even comments by Bank of England member Gertjan Vlieghe that the economy still needed a lot of stimulus and that the BoE would add negative interest rates to its toolkit in August was able to affect Sterling,” according to Heger.

The somewhat dovish remarks from Vlieghe arrive just weeks after delivered updated economic projections, forecasting growth of 7.25% this year, the fastest pace in more than 70 years.

The BoE also cut its weekly bond purchases to £3.4 billion from £4.4 billion in order to meet its unchanged £875 billion year-end target.

But the central bank was insisted that the slowing of its weekly bond purchases should not be viewed as a taper given its £875 billion bond holding target remains intact.

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