Sterling traded around its strongest level in a month against the euro on Wednesday, as more weak economic data from the shared currency area put Westminster’s political drama in the shade.
As Boris Johnson, the leading eurosceptic, prepared to take over as prime minister, sterling was on course for its biggest rally against the euro since May, strengthening by 0.6 per cent with £0.8915 required for a unit of the shared currency.
It came after another set of bleak economic data stoked concern about the euro zone's faltering economy, increasing expectations that the European Central Bank would open the way for a return to stimulus at its next monetary policy meeting on Thursday.
Investors said that sterling looked like good value after its weakened by as much as 1 per cent against the euro during July.
"Sterling weakness has prompted some interest from investors outside the United Kingdom who consider it cheap," said David Zahn, head of fixed income at Franklin Templeton.
“We expect volatility to continue for several weeks as Boris Johnson builds his government. Any sterling sell-off, even in the event of a no-deal Brexit, might not be as much as people think, and/or it could be a quick sell-off followed by a swift rebound.”
Sterling also recovered its poise against the dollar, ending three consecutive sessions of decline and reclaiming the $1.25 mark, up by as much as 0.7 per cent to $1.2522.
Buy the rumour
Jordan Rochester, an FX strategist at Nomura, said "there is a buy-the-rumour, sell-the-fact bit of price action taking place here," adding:
“Boris Johnson has not been adding to the Brexit hardness, he is still talking about getting a deal and now will be in the mood to boost his polling numbers by talking up the positives. Election risks will come around again, but not on day one.” – Copyright The Financial Times Limited 2019
