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The Accumulator: Pound's stunning Brexit fightback

The pound is on course for its best month against the dollar since 2010, turning our weekly Accumulator table red.

 
The Accumulator: Pound's stunning Brexit fightback
 

Not since the summer of 2010 has the pound experienced the kind of rally against the dollar with which it has kicked off this year.

Our exclusive Accumulator data table shows the scale of the pound's rally: since the start of the year, the dollar has tumbled 5.4% against sterling, and is down 6.5% over the last rolling month.

It's the most dramatic move for the pound since its spectacular tumble following the Brexit vote. Trading at around $1.43, the pound is now broadly back at the levels at which it was trading ahead of the referendum, before a rally in the two weeks prior in the belief the UK would vote to remain in the EU pushed it closer to $1.50.

The bulk of the pound's gains have come from the dollar's weakness. Donald Trump's first year as US president has coincided with a precipitous 11% fall in the greenback against a global basket of currencies, and his administration has done little to fight it.

The biggest drop this week came after US Treasury secretary Steven Mnuchin claimed at the World Economic Forum in Davos that a weak dollar was positive for the world's largest economy.

'Where it is in the short term is not a concern for us at all,' he said. 'A weaker dollar is good for us as it relates to trade and opportunities.'

But the pound's rally is not just a factor of the dollar's fall. Measured against a trade weighted index of other currencies it is also up, and has made gains against the yen and even the strong euro since the start of the year.

Chris Iggo, chief investment officer for fixed income at AXA Investment Managers, has been left puzzled by sterling's ascent.

'Yes, growth has been better than expected but this is true everywhere,' he said.

'Rates aren't particularly attractive even though the Bank of England notched them higher last November. The UK's external balance sheet remains well in deficit. 

'Politically there is little reason to be autonomously bullish on sterling. The Conservative party seems to be as divided as ever on Brexit strategies and in my view there seems to be a significant risk of a challenge to prime minister May and even another general election at some point this year.'

The pound's resurgence has acted as a drag on investors' portfolios, with its impact most pronounced this week in turning a 1.9% rally in US markets in the five days to yesterday into a 1.5% loss.

But the strength of the global stock market rally has been such that investors have been able to celebrate overseas gains in spite of the pound's drag in recent months. Again, the US is the prime example, producing an 11.1% gain in pound terms over the last year despite the dollar's fall by even more than that. 

Should that rally start to falter, and the pound continue to recover, the red that has crept into our table may start to spread quickly.

You can view the Accumulator table here.

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