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Pound rebound lacks punch

The good news is that sterling traders do not seem to care about British politics any more. The times when the currency was referred to as the UK’s “unofficial opposition” were rather fraught, after all, and heaven knows we have earned a quiet summer. The bad news, for those who want a stronger currency at least, is that this still does not help.

On the face of it, the crisis is over for the pound, which has rocketed up from around $1.20 in January to over $1.30 now — around the strongest levels since September last year. What is more, it is finding fans against the buck in all major trading time zones. Number crunchers at Deutsche Bank calculate that over the years, patterns in the currency pair have varied distinctly from the Asian trading session to the more active London and New York hours. In the immediate aftermath of the Brexit referendum, for example, London and New York pretty consistently sold the pound. Asian traders were more likely to buy, perhaps, the German bank suggests, “regarding sterling as a value proposition after its initial sell-off”.

Since the June general election, however, all major time zones have shown bullish price action — an unusual lack of regional bias. In another sign of calmer nerves, options trading activity in sterling has slumped, which “might reflect that the investment community is suffering from severe fatigue with UK politics”. So, back to the races, right? Well, there are problems. One is that the low enthusiasm for options is a much bigger issue than for sterling’s patterns against the greenback. US stock markets are stuck in their longest, quietest trading period since 1927 after all. In addition, this is more about the troubles besetting Donald’s dollar. The mighty euro has crammed the pound down to 10-month lows. Bad news for Brits toasting themselves on the Med over the summer, although the sunshine and paella will knock the edges off the pain. Happier news at least for some exporters, and a big buffer for UK stocks, with the FTSE 100 up over 5 per cent this year.

Hampered by an unsupportive rates outlook and a central bank spooked by potential Brexit fallout, the pound is now probing its weakest levels, on a trade-weighted basis, since January. Unusually, and increasingly, looking at sterling only through the lens of the dollar is unreliable.

katie.martin@ft.com