Sterling rises but traders say gains unlikely to last

Sterling was slightly higher on Thursday, boosted by better-than-expected retail sales and news that Britain's opposition Labour Party had begun its bid to bring down prime minister Boris Johnson with a vote of no confidence.

Higher July inflation, posted on Wednesday, also contributed to the marginal optimism.

Moreover, investors have been trimming their expectations of further weakness in sterling, judging by prices in the derivatives market.

But analysts say it is unlikely that sterling will rise much further given the growing risk of the UK crashing out of the European Union without a divorce deal in October.

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Against the euro, the pound was up by the same amount at 92.20p, retreating from the 10-year low of 93.26p it plunged to on Monday. The pound was up by 0.2 per cent at $1.2080, but not far off the 31-month low of $1.2015 it reached on Monday.

Retail sales went up 0.2 per cent month on month in July, a smaller increase than in June, when they rose 1 per cent, but higher than a Reuters poll was forecasting, which was a 0.2 per cent fall. Year-on-year sales went up 3.3 per cent compared with a 3.8 per cent rise in the previous month.

Nervous

Marshall Gittler, chief strategist at ACLS Global, said the slowdown in sales “suggests to me that consumers are getting nervous ahead of Brexit”, adding that this should be negative for the pound.

The cost of protection against unexpected moves in the currency, seen in the three-month options pricing, eased a bit from a seven-month high. Three-month risk reversals, which encapsulate the Brexit deadline, paint a similar picture.

The small uptick came from the news that opposition leader Jeremy Corbyn has started to gather support for a no-confidence vote in the current government.

This was seen by some investors as confirmation that the UK parliament is ready to do all it can to avert a no-deal Brexit. However, most analysts still see a no-deal exit as more likely. – Reuters