The pound has surged by more than three cents on Theresa May’s Brexit speech putting it on course for its biggest one-day rise against the US dollar since 2008.
Sterling rocketed after the Prime Minister’s vision for exiting the European Union appeared less “hawkish” than had been expected – and floated the possibility of an associate membership of the tariff-free customs union.
Markets were also cheered by the confirmation that Parliament would get a vote on the final terms of the Brexit deal and that there would be a transition phase to Brexit after divorce negotiations are completed.
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Sterling leapt by as much as 2.5% to match the scale of one-day gains last seen in 2008 and overtake the size of a rally seen earlier this year ahead of the referendum.
Neil Wilson, senior market analyst at ETX Capital, said: The pound took off like a rocket today on what amounts to a far less hawkish Brexit speech from Theresa May than many had feared.
The pound was at nearly $1.24, having started the day just above $1.20. It was also two cents ahead against the euro – the biggest rise against that currency since July.
But while it was a strong rally for sterling the gains were only enough to recover from steep falls seen since last week in the run-up to the speech.
The pound fell to its lowest level against the dollar since 1985 after June’s Brexit vote and has since plumbed new depths. Even after its latest rally it is around 18% off its pre-referendum levels.
Its weakness is starting to drive up the consumer prices as it makes imported goods more expensive – though UK exports are benefiting because their goods are more attractively priced for overseas buyers.
Mr Wilson cautioned that the pound was definitely not out of the woods with much uncertainty over what will happen after the UK leaves the single market.
Traders also pointed to a Donald Trump factor in sterling’s rise against the US dollar, after the president-elect said the US currency was too strong.
Kathleen Brooks, research director for City Index Direct, said Mrs May’s speech delivered “much-needed detail that the market has craved since the June vote”.
It also suggested she would be “no push over” during negotiations as she warned the EU over the negative consequences of pushing a “punitive deal” onto the UK, she added.
The fact that the Government will put the final deal to a vote in both Houses of Parliament seems to be the rallying cry for sterling, as it could limit some of the excesses of some of the Brexiteers.
“But, even this concession cannot hide the fact that the UK wants the best parts of the EU, with a cherry on the top, which could make the next two years extremely tense.”
The pound’s climb sent the FTSE 100 Index 1% lower.
London’s top-flight had been trading at record highs as 2017 thanks to the weakness of the pound, which increases the sterling value of foreign currency revenues earned by UK-listed multinationals.