By Yasin Ebrahim
Investing.com – Sterling surged to a near one-month high against the dollar on Monday, but some have called for caution amid fears the U.K. and EU are unlikely to make progress on upcoming trade talks.
GBP/USD rose 1.08% to $1.2477 to its highest since May. 5.
The next round of Brexit talks are set for Tuesday, but there is "little to suggest we should expect any real progress, and that's one reason why we've seen some risk premium creep back into the pound," ING said in a note.
With time running out for the U.K. and EU to agree an extension to the transition period by the June 30 deadline, the surge in sterling is likely on borrowed time. "The fading prospect of an extension to the post-Brexit transition period, and the risk of supply chain disruption at the start of 2021, casts a cloud over the GBP outlook," ING added.
Without an extension to the trade talks, the U.K. will have until the end of the year to agree a trade deal with the EU, or risk a no-deal exit, a scenario that many have warned could have dire consequences on economic growth at a time when the economy is reeling from the Covid-19 impact.
Data on Monday showed U.K. manufacturing activity continued to languish in contraction, though a slowdown in the pace of factory output decline stoked hopes that the worst may be over.