The pound recovered on Tuesday but concerns about a disorderly departure from the EU meant gains were minimal, amid promises from US President Donald Trump of a "phenomenal" post-Brexit trade deal. The pound has dropped for four straight weeks, hit by worries that Britain will crash out of the European Union on Oct. 31 without an agreement on terms, as well as weak UK data.
Trump, who arrived in Britain on Monday, has praised Brexit hardliners Boris Johnson and Nigel Farage. Sterling climbed off five-month lows, trading up 0.2% on the day at $1.2681. Against the euro, it gained 0.2% to 88.57 pence but remained close to a four-and-a-half-month low. .
May is quitting and nearly a dozen candidates are vying to replace her. Johnson, the bookmakers' favourite, says the UK should leave the EU on Oct. 31 with or without an agreement. "The pound is set to continue depreciating, but the rise in sterling risk (premia) and short speculative positioning now suggest a slower pace of depreciation," said Petr Krpata, chief EMEA FX and interest rate strategist at ING.
Short positions on sterling are at their highest since March 17, according to the US Commodity Futures Trading Commissions, reflecting uncertainty on Britain's economic outlook.