Pound higher against euro on strong UK data

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Pound higher against euro on strong UK data

On Friday, the pound edged higher against the euro after robust UK economic data, while investors assessed the impact of a potential leadership change in the country.

Britain's economy grew by a much stronger than expected 0.9% in November, taking it above its size just before the country went into its first COVID 19 lockdown.

The pound was recently immune to political noise while it was supported by expectations of rate hikes by the Bank of England this year.

The trade-weighted index rose to its highest level since June, a day after the referendum on the subject of the UK's referendum.

The pound rose 0.15% to $1.3730 on Friday, within striking distance of its highest level since Oct. 29th, and was at $1.3749 on Thursday.

The U.S. dollar fell for a fourth consecutive day to its lowest in more than two months, as investors believed that most of the recent hawkishness from the U.S. central bank has already been priced in.

The pound was up 0.2% against the euro at 83.43 pence, not far from its highest level since February 2020, hit on Tuesday.

The UK economy might have had a bit of insulation heading into the Covid-restricted December period, ING analysts said in a note.

A 25 bp BoE rate hike is still priced with an 80% probability of a February 3rd meeting, which will likely keep GBP supported over the coming weeks, they added.

Prime Minister Boris Johnson is facing the gravest crisis in his premiership after revelations about a series of gatherings in Downing Street during the COVID 19 lockdowns.

According to Berenberg economist Holger Schmieding, a conservative successor of Johnson, Chancellor Rishi Sunak or Foreign Secretary Lizz Truss, would likely pursue similar policies but in a much less erratic fashion. He said a calmer approach could benefit UK markets and domestic business investment.

Johnson may be tempted to take a particularly hard line against the European Union, for instance on Northern Ireland or fishingeries to bolster his chances of staying in office.

Truss said on Friday that real mistakes were made when parties were held in Downing Street during lockdown, but it was time to move on.

If political change does not herald policy change, markets don't care, said Paul Donovan, chief economist at UBS.