Pound surges to post-Brexit high

Sterling is the world’s best-performing major currency this month

The pound climbed to the highest level against the dollar since just after the Brexit vote and UK government bonds tumbled as Bank of England policymaker Gertjan Vlieghe stoked speculation of an interest-rate increase within months.

Sterling surged past $1.36 after Vlieghe, considered a dovish voter, turned hawkish to tell a conference that the moment was approaching for a rate hike. The premium to hold call options on the pound relative to puts rose to the widest since 2009, as markets moved to price two rate increases next year.

The pound is the world’s best-performing major currency this month as the central bank’s comments suggest it’s willing to look past sluggish wage growth to remove the monetary stimulus put in place after last year’s Brexit vote.

Its performance contrasts with a slide caused by a Europe-linked crisis 25 years ago on September 16, 1992, when Britain tumbled out of the Exchange-Rate Mechanism on a day known as “Black Wednesday.”

“The evolution of the data is increasingly suggesting that we are approaching the moment when the bank rate may need to rise,” Vlieghe said in a speech at the Society of Business Economists in London on Friday. If the economy continues apace, “the appropriate time for a rise in the bank rate might be as early as in the coming months”.

Sterling rose 1.5 per cent to $1.3597 as of 4:10pm in London, having reached $1.3616, its highest level since June 24, 2016, the day after the Brexit vote. The pound strengthened for a sixth day versus the euro, gaining as much as 1.4 per cent to 87.74 pence.

Vlieghe’s comments sent yields on two-year UK gilts up seven basis points to 0.45 per cent, having earlier touched 0.49 per cent, the highest since June 23, 2016.

Benchmark 10-year gilt yields rose as much as 11 basis points to reach 1.34 per cent, a level not seen since February 6.