Sterling rose to a new 10-week high against the dollar on Friday and pulled itself out of a six-month trading range against the euro, prompting investors to unwind their long euro positions.
Against the euro, the pound has been trapped in a 86.5 pence to 90 pence per euro range for nearly six months, but cautious minutes from the European Central Bank this week and firm expectations of a rate hike from the Bank of England in May pushed the British currency to an 11-month high.
“This is a technical-driven rally caused by the currency breaking out of established trading ranges prompting a wave of position-covering by some funds but we need more fundamental drivers for the rally to sustain,” Danske Bank currency strategist Morten Helt said.
Against the euro, sterling rallied 0.4 percent to 86.32 pence per euro, its highest since late May 2017. On a weekly basis, it is set for its biggest gain since Dec. 1.
Sterling also pushed towards a new post-Brexit referendum high versus the dollar, rising 0.4 percent to $1.4296. It hit its highest since the 2016 vote in late January 2018, at $1.4346.
Expectations of a rate rise have been a major driver of sterling’s gains in recent days while the euro has suffered from from more top policymakers’ comments about its recent strength, and some lackluster data.
The market is pricing in a 65-percent chance of a 25 basis point hike next month.