Sterling surged 1.5 percent to a six-week high against the euro on Thursday, as investors unwound short positions against the pound amid uncertainty about the fallout from the U.S. election and focused on upcoming European political risks.
The pound’s almost 20 percent slide since Britain voted to leave the European Union in June has been the main currency story on developed markets in the months that have followed, and investors have built up record short positions against it on the view that it has further to fall.
But the fog of uncertainty created by Donald Trump’s victory in the U.S. presidential vote, after a campaign that included a range of potentially disruptive policy pledges, from building a wall between the United States and Mexico to declaring China a currency manipulator, could provide a different set of impulses over the next few months.
Having fallen against the dollar on Wednesday, sterling gained more than 1 percent on Thursday to reach as high as $1.2542 .
If Trump’s victory foreshadows more victories for populist politicians in Europe over the next year, that may also give Britain more cover from the politically driven selling that has hurt sterling since the Brexit vote in June.
Against a weakening euro – which faces a slew of political events in the coming months, from an Italian referendum next month to French presidential elections in the spring – the pound climbed to 86.70 pence , its strongest since the end of September.
via Kitco