The pound extended its advance from a three-decade low as traders took advantage of the global market rout to go on a buying spree.
Stocks, oil and higher-yielding euro-zone bonds all recovered some of the losses seen in the wake of Britain’s vote to leave the European Union. That’s even as investors — and European leaders meeting in Brussels — waited to see how the nation will execute its departure from the world’s largest single market.
Brexit is currently in deadlock because the U.K. itself must trigger the exit process following its June 23 referendum. Yet Prime Minister David Cameron announced his resignation on the morning the “Leave” result came in, and has repeatedly said that it’s for his successor — who’s not likely to be selected until September — to begin the proceedings. That’s frustrating his EU colleagues, many of whom want the process to start as soon as possible.
“Markets have calmed down somewhat,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “We may see some short-term continuation of the recovery in the pound if there’s an increased chance of a new prime minister who can secure the access of the U.K. to the single market. But uncertainty is still high and market participants are jittery.”
The pound rose 0.6 percent to $1.3418 as of 12:52 p.m. in London, a day after gaining 0.9 percent. Britain’s currency tumbled 8.1 percent on Friday, the biggest decline on record, and on Monday sank further to $1.3121, the lowest since 1985.
It’s still down 9 percent since Britons went to the polls to decide on their future relationship with the rest of Europe.
Sterling gained 0.5 percent to 82.51 pence per euro, after touching a more than two-year low of 83.80 pence on June 27.
Doubts are even emerging that Brexit will happen. The referendum isn’t legally binding on the government. A public petition calling for a rerun of the referendum attracted the support of millions. And pro-Europeans have suggested that members of the “Leave” campaign won with false promises, making the result illegitimate.
Cameron has said the government must honor the result of the vote, while German Chancellor Angela Merkel said in Brussels Tuesday that she sees “no way back” from the Brexit vote.
Still, the suggestion that an exit could be avoided has gained momentum, and Nordea Bank AB said Tuesday it saw a 30 percent chance that the U.K. won’t trigger the mechanism to quit the EU.
“There was definitely an air that full Brexit wasn’t necessarily a done deal yesterday,” London-based Deutsche Bank AG strategist Jim Reid wrote in a note to clients. “But we won’t know that for many, many months and possibly much longer — so expect lots of mood swings ahead.”