Sterling vulnerable as May outlines Brexit strategy

LONDON • The pound’s rally, spurred by the Bank of England’s (BoE) hawkish rhetoric, may be vulnerable to heightened sensitivity to economic data and Brexit uncertainty this week.

Sterling concluded its biggest weekly gain in five months against the dollar last Friday, reaching its highest level since just after Britain’s European Union (EU) referendum as UK policymakers spurred speculation of an interest-rate increase within months. While a speech by BoE governor Mark Carney and retail-sales figures may influence pound moves earlier in the week, Prime Minister Theresa May threatens to steal the show when she unveils her approach to Brexit on Sept 22.

The UK currency is the world’s best-performing major against the dollar so far in September as BoE policymakers said some withdrawal of stimulus may be needed “over the coming months”. Still, with May due to speak on Friday in Italy’s Florence about Britain’s exit talks with the EU, traders will scour her comments for clues on progress on any transitional deal and the UK’s separation payment, which is needed before trade can be discussed.

“The medium-term narrative for the pound will continue to be dominated by Brexit and here May’s speech in Florence will be key,” said Viraj Patel, a currency strategist at ING Groep NV. “If her speech doesn’t address the near-term obstacles such as the divorce bill and transitional arrangements required to move onto the next stages of the Brexit talks, then the uncertainty factor will continue to weigh on sterling in the near term.” — Bloomberg