The British Pound Sterling, on Monday, June 19, appreciated against the American dollar, with traders cautious as Britain formally began negotiations to leave the European Union and domestic political uncertainty dented appetite for the currency.
Sterling inched up 0.2 percent on Monday to $1.2803 and to 87.45 pence per euro, after posting a modest rise last week against both currencies.
The GBP has fallen over 15 percent since in the year since the referendum vote for Brexit, hit by worries that Brexit will damage the economy if foreign investment dries up, and that political uncertainty will dominate.
Data released by the Commodity Futures Trading Commission on Friday showed speculators took bets against the pound to the highest since early May in the week up to last Tuesday, amid political turmoil in Britain after no party managed to win a parliamentary majority in the June 8 election
And although sterling climbed sharply on Thursday after it emerged that the Bank of England’s monetary policy committee had seen a 5-3 split on whether to raise interest rates immediately on the back of rapidly increasing domestic consumer prices, the pound did not manage to hold onto those gains.
“There’s a general wariness of sterling,” said Societe Generale currency strategist Alvin Tan. “Despite the BoE’s surprise 5-3 vote we saw last week, it hasn’t been able to gain traction. The political situation is dominating.”
Brexit Secretary David Davis on Monday morning began negotiations in Brussels that will set Britain’s terms for leaving the EU.
Prime Minister Theresa May, whose Conservative party lost its majority in parliament on June 8, is now trying to form a minority government with the Northern Irish Democratic Unionist Party. But investors are worried that even when that deal is finalised, it will not make for a stable political environment.
Commerzbank analysts wrote in a note to clients that the fact Brexit talks were “finally starting” should be temporarily sterling-positive and “a step in the right direction.”
