The pound hit a five-day high versus the dollar as the greenback lost momentum, but the outlook for the British currency was clouded by fresh angst over Brexit and doubts about the economy.
Weak economic data and renewed political uncertainty over the government’s Brexit position hammered sterling last week and sent it to 10-month lows.
The currency has in recent sessions, however, clawed back some gains against the dollar and the euro despite weaker-than-expected retail sales and softer inflation data.
Yesterday, British Prime Minister Theresa May said she would now lead negotiations with the European Union and Brexit minister David Raab urged the EU to respond to a policy document to reach a deal on Britain’s departure by October.
Next week the Bank of England meets, and markets are giving an 80 percent chance that it will increase interest rates.
With no clear sense of direction, sterling remains vulnerable to moves in other currencies.
Sterling looks set for more volatility, especially if there are signs that support for a “hard” Brexit – crashing out of the European Union without a trade deal in place – is gaining ground.