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Monday, 22 January 2018

Sterling steadies around $1.39 after best run since 2014


LONDON (Reuters) - Sterling steadied around $1.39 on Monday, with traders cautious about pushing the pound higher after five consecutive weeks of gains against the dollar - the currency’s longest winning streak since 2014.

Data published on Friday showed speculators increased their net-long positions on sterling - or bets that it would rise - to the highest level in 3-1/2 years in the latest week, on the view that Brexit talks had so far gone relatively well and that the economy was ticking along better than some had expected.

Former Goldman Sachs economist and Treasury minister Jim O‘Neill said on Monday morning that Britain’s economy is likely to do better in 2018 than many forecasts suggest and the benefits of global growth in the coming years will “easily dwarf” any Brexit hit.

But some analysts say there have been few fundamental drivers behind the pound’s 3 percent climb against the dollar since the start of the year, that there remains a great deal of political uncertainty, and that sterling is due a correction lower.

“With speculative long positioning close to multi-year extremes, we advise against chasing the currency higher. If anything, we remain of the view that the currency is trading in overbought territory,” said Credit Agricole currency strategists Manuel Oliveri.

Sterling traded flat at $1.3907 on Monday, close to Friday’s peak of $1.3945, its highest since the results of Britain’s vote to leave the European Union in June 2016.

Although it is still down more than 7 percent since the day of the ballot, thee pound is now trading higher against the dollar than during a dip four months before the EU referendum, when the currency briefly touched as low as $1.3836.

Versus the euro, however, which has strengthened across the board in recent months, sterling is still trading far lower than its pre-referendum levels and is down almost 14 percent since the day of the vote.

The pound was trading up 0.1 percent on the day at 88.08 pence per euro on Monday.

“Euro strength has pulled the pound higher lately, pushing sterling/dollar to post-referendum highs,” wrote UBS Wealth Management strategists in a note to clients.

“We expect this trend to continue, as the UK economy remains relatively solid. A strong U.S. dollar rebound remains unlikely, given the U.S.’s large trade and budget deficits, but rising U.S. interest rates should deliver some support to the dollar,” they added.

French President Emmanuel Macron said on Saturday Britain would be able to have a bespoke deal with the European Union after Brexit, one of Prime Minister Theresa May’s objectives, though London’s financial centre could not enjoy the same level of access to the EU under May’s current Brexit plan.

Reporting by Jemima Kelly

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