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Sterling surges above $1.41, on track for best day since January

·3 min read
FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna

By Elizabeth Howcroft

LONDON (Reuters) - The pound rose to as high as $1.4158 on Monday, its strongest in more than two months, fuelled by a mix of dollar weakness, improved economic forecasts, lockdown easing measures, and market relief about the outcome of the Scottish election.

Pro-independence parties won a majority in Scotland's parliament on Saturday, which Scottish leader Nicola Sturgeon said gave her a mandate to pursue plans for a second independence referendum.

But the pound strengthened as market participants did not interpret this as a near-term risk because Sturgeon's party did not win an outright majority. Sturgeon said that her first task was to deal with the COVID-19 pandemic.

"The market has basically judged that she's certainly not walking away with a very, very strong mandate for a imminent referendum," said Ned Rumpeltin, head of European currency strategy at TD Securities.

Any second referendum on Scottish independence requires the approval of the British government and Prime Minister Boris Johnson has ruled this out.

At 1540 GMT, the pound was up 1.1% on the day at $1.4138, having crossed the key $1.40 level for the first time since February during the Asian session, and risen above $1.41 during the European morning session.

Versus the euro, it was up 1% at 86.06 pence per euro, having earlier hit 85.94.

(Graphic: GBP:

Analysts said the move in the pound versus the dollar was also due to dollar weakness, as the greenback dropped to a two-month low after a disappointing U.S. employment report.

Sterling's gains could also be a delayed reaction to the Bank of England raising its forecast for British economic growth at its meeting last week, some analysts said.

The BoE slowed the pace of its trillion dollar bond-purchasing programme on Thursday, but stressed it was not reversing its stimulus.

"We read the move as more of a legacy as the market is moving towards the Bank of England's bullish set of UK forecasts and now greater confidence in the soft dollar environment," ING FX strategists wrote in a note to clients.

Johnson is due to set out the next phase of lockdown easing in England, with the changes to begin on May 17.

"The re-opening of the dominant UK services sector as lockdown restrictions are removed is expected to provide a further boost for sterling," said Stuart Cole, head macro economist at Equiti Capital.

Sterling-dollar FX futures volumes are up 57.4% so far in May compared to the same period in May 2020 and there were $10.9 billion of sterling-dollar futures traded on Friday, above the year-to-date average of $7.8 billion, according to CME data.

Elsewhere, CFTC positioning data showed that speculators reduced their net long position on the pound in the week to May 4.

(Graphic: CFTC:

(Reporting by Elizabeth Howcroft; Editing by Steve Orlofsky, Alison Williams and Mark Heinrich)