The pound hit a two-week high against the dollar on Tuesday, ending a volatile year in the green.
Sterling was up 0.6% against the dollar to $1.3203 (GBPUSD=X) by lunchtime in London. The rate was the highest since mid-December against the greenback.
The pound was also gaining on the euro, up 0.4% to €1.1757 (GBPEUR=X). That marked an 11-day high for sterling.
There was no obvious spur for Tuesday’s rise. Thin volumes likely contributed, given New Year’s Eve. When market activity is quieter, smaller orders can have a larger than usual impact on price.
The rise for the pound on the last day of 2019 caps a volatile year for sterling. The currency has traded as low as $1.20 and as high as $1.35 over the last 12 months. The swings in fortune have been driven almost entirely by Brexit developments, with investors largely ignoring domestic economic data.
Sterling has ended the year on the front foot thanks to the decisive win for the Conservative party in the election earlier this month.
“After finding itself under pressure for much of the year, [sterling] made gains in the last quarter,” said John Fahey, a senior economist at AIB, in a note to clients.
“It was supported by the expectation that a Conservative election win would enable a relatively quick passage of the Withdrawal Agreement through Parliament. This will pave the way for an orderly UK departure from the EU at end January.”
While optimism over the Withdrawal Agreement is currently supporting the pound, we could see more volatility as next year progresses. Talks between the EU and UK will move on to future trading relations after Britain officially leaves the EU. These talks could be fractious and blow-by-blow developments will likely drive the exchange rate in much the same way the progress of the Withdrawal Agreement has.
“The talks on the future EU-UK trading relationship are expected to be difficult and the end-2020 completion date looks ambitious,” said Fahey. “Therefore, with sterling likely to remain sensitive to Brexit newsflow, 2020 could turn out to be another volatile year for the UK currency.”