Sterling had been on a downward trend since the U.K.’s vote to leave the European Union in 2016, but reduced concerns over an abrupt break-up with the EU are sending the currency higher.
The pound traded at $1.40 against the dollar Tuesday morning, not only boosted by a weaker dollar, but also because traders are more confident that the U.K. will strike a deal with the EU and thus avoid a so-called hard Brexit, where the U.K. and the EU would be trading under World Trade Organization (WTO) rules.
On June 23, 2016, the day the U.K. held a referendum on its EU membership, sterling was at $1.48. It tumbled on the following day to $1.36 and touched $1.20 in January 2017. According to Gallo’s predictions, if Brexit negotiations produce some sort of deal between the U.K. and the EU, sterling could be back to its pre-Brexit values by the end of the year.
Kallum Pickering, senior U.K. economist at Berenberg, told CNBC on Tuesday that he expects cable, the exchange rate between the British pound and the U.S. dollar, to trade at $1.45 by the end of the year.