For the past five weeks, selling the pound on the view that U.K. interest rates won’t budge has been a profitable trade. That’s now fizzling.
The pound rose against the dollar for a third straight day, even as U.K. government bonds advanced following a report that showed a surprise drop in investment and a slump in exports. Sterling gained 1.2 percent since dropping to a 14-month low last week, a sign to some that the possibility of another year of record-low interest rates is already factored into the price.
“Expectations have shifted so massively that the potential for surprises on the downside are quite limited,” said Ulrich Leuchtmann, the head of currency strategy at Commerzbank AG in Frankfurt. “This change in monetary policy is becoming a little bit off the table as a main driver for sterling.”