The pound pushed toward levels not seen in three years on Wednesday, making it among the world’s strongest currencies, though that had a detrimental effect on London stocks.
The first of three factors that are driving up the pound is the European Union-U.K. trade deal, said Jane Foley, senior FX strategist at Rabobank, in a note to clients. The yield on the 10-year gilt TMBMKGB-10Y, 0.731% was trading just under 0.8%, a level not seen in more than a year. Global bond yields have been rising on hopes that COVID-19 vaccines will restart economies faster than expected.
As well, she said, there is speculation of pent-up demand in the pound, amid evidence that U.K. investment levels have been low in the last several years due to Brexit uncertainty. But shadows remain on that front, with the services sector largely “out in the cold” and talks outstanding with the financial services sector, along with issues related to red tape at U.K. borders.
MarketStudentNe Oh yeah, can't keep a good pound down!