After last year’s Brexit-induced collapse and Donald Trump’s pro-America rhetoric pounding, the British pound, where sentiment has been overwhelmingly negative for months, if not years, has rallied to its strongest on a trade-weighted basis since December. Against the US dollar, it is back to levels last seen in October and has gained 5 per cent since January, outperforming most currencies. With the 27 European Union leaders deciding how to tackle Article 50 over the weekend and a holiday on Monday, the chance of another round of short covering is strong. Note that pound puts are still more expensive than calls, suggesting most investors are still shorting the currency. We expect a surge to US$1.3225.
