Dollar weakness has driven sterling higher (GBPUSD)

The pound shot up in morning trading as traders continued to take comments by US Treasury secretary Steve Mnuchin to heart – although it failed to touch yesterday’s highs.

Sterling rose as much as 0.75 per cent to $1.4264 in early trading, while the euro rose 0.5 per cent to $1.2485.

The dollar’s weakness followed comments by Mnuchin at the World Economic Forum in Davos yesterday, suggesting a weak dollar was good for the US. The comments sent sterling above $1.43 for the first time since the Brexit vote.

Although Donald Trump later said Mnuchin had been misinterpreted, the dollar remained lower.

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“Admittedly Trump’s claim did help the dollar regain ground last night, preventing the currency from ending the day at fresh lows,” said Connor Campbell, financial analyst at Spreadex.

“Basically, none of this matters. US policy on the dollar hasn’t changed at all,” added Marshall Gittler, chief strategist at ACLS Global.

“It’s been a matter of ‘benign neglect’ for years now, and there’s no change in that. [US chief economist Gary] Cohn perhaps had the most accurate statement when he said that’the market is setting the value of the dollar’, which of course implies that the government isn’t setting it.

“It’s just that when Mnuchin implied they weren’t concerned about the level and indeed were happy to see it decline, that seemed to rule out any possibility of the government getting involved, and that spooked the market.”

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