Sterling hits highest in over seven years

Sterling hit a 7 1/2-year high against the euro on Monday as investors veered towards currencies perceived to be a safe haven after Greece imposed capital controls. The pound fell from those highs in afternoon trade but was still firmer on the day, with traders citing intervention by the Swiss National Bank as one reason the euro was recovering. And while there was little panic across markets, most traders said any bounce in the euro was likely to be brief.
Greece looks virtually certain to miss a debt repayment to the IMF on Tuesday after its European partners refused to extend a credit lifeline when Athens announced a referendum on bailout terms. The euro fell to 69.885 pence in early Asian trade, its lowest since late 2008, before recovering to trade at 70.80 pence, still down 0.2 percent. Sterling was down 0.1 percent at $1.5730.
On a trade-weighted basis, the gains against the euro kept sterling at a seven-year high of 93.5. "Sterling is likely to gain as a non-dollar safe-haven in response to European developments," said Josh O'Byrne, currency strategist at Citi. "Long sterling positions on the crosses are particularly attractive, given that Greek saga will have only limited direct pass-through to UK policy."
Sterling has been gaining on revived expectations British interest rates will rise at the end of this year. A jump in wage growth and signs the Bank of England's policy committee is divided over keeping rates at record lows have prompted money markets to price in a rise as early as December. The latest Greek developments have done little to change those expectations, traders said, although risk of a contagion from the euro zone, Britain's biggest trading partner, could change that.
UBS currency strategist Geoff Yu said rhetoric about the currency may rise but more explicit action was unlikely. "While the direct exposure of the UK to Greece is very limited, it is the potential for contagion that will likely be of most concern," he said. "The MPC has scope to watch how the Greek referendum unfolds. If it needs to act, we believe the MPC is likely to sound rhetorically dovish first and foremost."