Pound Jumps as Court Brexit Ruling, BOE Deliver Double Boost

(Bloomberg) -- After months of bad news for the pound, the currency got a double boost on Thursday, pushing it to a four-week high versus the dollar.

Sterling climbed against all of its 16 major peers as a U.K. court ruled the government must hold a vote in Parliament before starting the two-year countdown to Brexit, and the Bank of England said it's no longer expecting to cut interest rates again this year. That ate into the pound's 15 percent drop versus the dollar in 2016, the worst among major currencies.

“There's finally some good news for the pound,” said Kathleen Brooks, a research director at brokerage City Index in London. “The market has rapidly priced out the prospect of a rate cut, given the much more hawkish-than-expected inflation report,” while the court ruling brought “a good type of uncertainty” as it may delay the triggering of Brexit.

The pound rose 1.2 percent to $1.2453 as of 4:06 p.m. in London, having climbed earlier to $1.2494, the highest since Oct. 7. That pared the U.K. currency's slide since the June 23 vote to quit the European Union. Sterling strengthened for a second day versus the euro, gaining 1.2 percent to 89.09 pence.

The U.K. currency climbed on speculation the High Court ruling will delay or soften the terms of the nation's exit from the EU. Government bonds fell as BOE officials raised their forecasts for growth and inflation, and indicated concern that higher consumer prices may even warrant tightening policy at some point.

Prime Minister Theresa May had said that she intended to trigger Article 50 of the Lisbon Treaty, which begins a two-year countdown to the actual separation, by the end of March. The pound dropped 5.6 percent versus the dollar in October, the worst performer among currencies tracked by Bloomberg, amid speculation the government would prioritize immigration controls over free access to the EU single market during its exit. The government said it will appeal the High Court ruling.

‘Relief Rally'

“It does shift the odds somewhat that the process is going to be delayed and given that Brexit is the issue that has weighed on the pound, it means there's a bit of a relief rally on that,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Denmark.

The ruling came about two hours before the BOE said it kept monetary policy unchanged. The decision to maintain the key interest rate at a record-low 0.25 percent was forecast by all but four of 60 economists surveyed by Bloomberg.

The central bank lowered its key interest rate for the first time in seven years on Aug. 4 to cushion the blow from the U.K.'s decision in June to leave the EU. It also announced an increase to its asset-purchase target.

U.K. government bonds fell, with benchmark 10-year gilt yields increasing five basis points, or 0.05 percentage point, to 1.22 percent. The FTSE 100 Index of shares dropped 0.5 percent, reversing an advance of as much as 0.4 percent.

--With assistance from Lukanyo Mnyanda and Anchalee Worrachate To contact the reporter on this story: Marianna Aragao in London at mduartedeara@bloomberg.net. To contact the editors responsible for this story: David Goodman at dgoodman28@bloomberg.net, Keith Jenkins