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Sterling soars to its highest level since the Brexit vote

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Silvia Amaro | @Silvia_Amaro 1 week ago
Sterling soars to its highest level since the Brexit vote

The currency has risen 6 percent since 2018 began, making it the best-performing currency among the G-10 economies.

The British currency depreciated more than 10 percent after the result of the referendum, when U.K. voters surprised markets with their decision to leave the EU. Since then, the uncertainty regarding the U.K.'s economic future has sent sterling on a bumpy ride.

Though the pound is still below its pre-referendum levels, the start of 2018 has shown some momentum is building. The recent strengthening has been caused by expectations that the Bank of England (BOE) will raise rates, as the economy performs better-than-expected. There has also been the agreement with the EU to put in place a transition period of 21 months before the U.K. is officially out of the bloc.

"Sterling is currently the best performing G-10 currency in the year to date … (But) there are clear caveats to this optimistic outlook," Rabobank analysts said in a note Monday.

"There are signs that the U.K. economy lost momentum in the first quarter, which could throw up hurdles for BOE hawks, also the Brexit trade talks could be tough," they said.

Economists are expecting a slight decrease in gross domestic product (GDP) figures in the first quarter of 2018, after a growth rate of 0.4 percent in the last quarter of 2017. This is because the U.K. was severely hit by bad weather during the month of March, which is believed to have had an impact on every sector of the economy.

Meanwhile, markets are expecting the BOE to raise rates at least once this year, with many expecting this to happen at a meeting in May.

On Tuesday morning, euro-sterling traded at about 0.863.

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