Sterling hit an eight-day high on Wednesday, building on its strongest one-day gains in over three months on a trade-weighted basis, after a UK government lawyer said parliament would have to ratify any deal to take Britain out of the EU.
The currency didn’t show much reaction to the data released on Wednesday showing job creation in Britain slowed in the three months to August. The numbers showed little sign of a big hit to the labour market from June’s vote for Brexit.
Having plunged to a record low last week on worries that Britain would undergo a “hard” Brexit, in which access to the single market was sacrificed for the sake of tighter controls on immigration, the Bank of England’s trade-weighted sterling index jumped 1.4 per cent on Tuesday to an 11-day high of 74.7. It was just below that on Wednesday at 74.6.
Lawyer James Eadie, who is representing the government in a High Court challenge over who has the right to trigger the divorce process between Britain and the EU, had said on Tuesday that parliament - not just the ruling Conservative government - would “very likely” have to ratify any Brexit agreement.
“That helped to improve sentiment towards the pound so we had a modest relief rally yesterday,” said Bank of Tokyo-Mitsubishi UFJ currency economist Lee Hardman.
“But for that upward momentum to be sustained and for us to see a larger rebound we’d need to see the courts rule that parliamentary approval is required for triggering Article 50 - in our view that’s more important and the market would be more sensitive to that development.”
Against the dollar, the pound gained 0.3 per cent to hit an 8-day high of $1.2334. It was also 0.1 per cent up at 89.24 pence per euro.
“Expectations for further falls ... are still strong, and the recent rebound is likely being seen by investors as an opportunity to reload selling positions,” said FXTM analyst Jameel Ahmad.
London’s High Court had said on Tuesday it would rule “as quickly as possible” on whether parliament in its entirety must trigger Article 50, which starts formal divorce proceedings.
But whichever side loses will almost certainly appeal to the Supreme Court, the UK’s highest judicial body, which will not give a final verdict until December.
British government bond prices were little changed after the labour market data, with 10-year yields just 1 basis point up on the day at 1.09 per cent and well off the three-month high of 1.223 per cent struck on Monday.