FX round-up: Pound higher as traders are forced to cover shorts after May, Trump

Sterling snapped higher after a speech by the Prime Minister triggered short-covering from traders, with US dollar-negative remarks from president elect Donald Trump giving the pound a further boost in its cross against that currency.

As of 1627 GMT, the euro was down by 1.89% to 0.8634 against Sterling, as the pound shot up by 2.75% to 1.2374, and was changing hands near its best levels of the session, at 1.2398.

"Theresa May’s 12 point plan for the UK’s Brexit negotiations appears to have soothed market concerns that there will a cliff edge Brexit, as she indicated a desire for a transitional deal, with a phased implementation timetable if negotiations extend beyond 2019, which seems likely. The pledge to hold a vote in both Houses of Parliament appears to have headed off concerns about a constitutional crisis," commented Michael Hewson, chief market analyst at CMC Markets UK.

"There was also some steel in the speech, she admonished the EU for not respecting difference and trying to hold things together with a vice like grip, and clearly stating that a punitive deal would see the UK walk away rather than sign a bad deal."

To take note of, stronger than expected UK consumer price data referencing the month of December, and published earlier in the day, showed the cost of living in Britain jumped from 1.2% year-on-year in November to 1.6% (consensus: 1.4%).

Speaking the day before, the Governor of the Bank of England, Mark Carney, reminded markets that "there are limits to theextent to which above target inflation can be tolerated."

Acting as backdrop, the US dollar spot index was down by 0.71% to 100.46 and changing hands near its lowest levels in over one month.

In an interview with the Wall Street Journal published on 13 January Friday Donald Trump said the US currency had gotten "too strong", particularly given how the Chinese yuan was "dropping like a rock".

“Our companies can’t compete with them now because our currency is too strong. And it’s killing us.”

Trump´s comments saw the US dollar/yen lose 1.16% to 112.80, while euro/dollar climbed 0.97% to trade at 1.0730.