LONDON
The pound looked set to end a record run of losses against the euro as Theresa May’s resignation as U.K. prime minister led traders to take bets on further political turbulence off the table.
Sterling gained for the first time in 15 sessions against the common currency on Friday, having been battered this month by the prospect that a hard-line Brexit candidate could replace May. With that risk now factored into the market, traders are waiting for the results of this week’s European parliamentary elections on Sunday and for a successor to May to emerge.
“The only ‘good news’ for the pound is that it has fallen for 14 days in a row,” said Jordan Rochester, a currency strategist at Nomura International Plc. “What we’re witnessing now is ‘buy-the-rumor, sell-the-fact’ profit taking, that is for now boosting the pound. It will probably end up being a gift for those who are considering fresh shorts.”
The pound rose 0.2 per cent to 88.18 pence per euro, having fallen more than 3.5 per cent since May 3. Sterling also made only its third gain against the dollar in that period, rising 0.3 per cent to $1.2690. The U.K. currency has been the worst performer among Group-of-10 peers this month, reversing an advance earlier this year.
Ahead of May’s announcement Friday that she will step down on June 7, markets had already turned to this issue of who could replace her. The frontrunner is former Foreign Secretary Boris Johnson, who is seen more likely to put a no-deal divorce from the European Union back on the table to placate euroskeptic Conservative Party members and to see off a challenge from Nigel Farage’s Brexit Party.
U.K. government bonds fell, with 10-year yields up two basis points to 0.98 per cent, having touched the lowest since 2017 earlier in the day. As political uncertainty clouds the outlook, traders are also starting to bet the Bank of England may need to shift gear toward interest-rate cuts rather than hikes.
