Sterling hit a one week high on Monday ahead of the the UK minority Conservative government signing a confidence and supply agreement with Northern Ireland’s Democratic Unionist Party (DUP)
GBP/USD was 1.2737 at 11.25 BST, following the news that a deal had been reached. This was up 0.14% from the previous session close of 1.2719.
The pound had hit a week high of 1.2755 at 09.15 BST on Monday morning.
Prime Minister Theresa May secured a deal with the Democratic Unionists in order to strengthen the position of the minority Conservative government in parliament. The DUP hold 10 seats, necessary support for the Conservatives to gain a total majority of votes in the House of Commons.
According to the terms of the agreement, the DUP ensured that the pension triple lock remain in place; there will be no means testing of winter payments for the elderly; and spending on NATO will remain 2% of GDP. Arlene Foster, head of the DUP, also announced that there will be £1.5 billion extra spending on Northern Ireland.
Speculation about a rate hike by the Bank of England before the end of 2017 has increased trader confidence in sterling. Governor Mark Carney will head a news conference ahead of the publication of the Financial Stability Report on Tuesday. Investors will be looking to hear comments from other MPC members following Andy Haldane’s hawkish comments last week.
Carney is also expected to talk on Wednesday at a panel discussion in Portugal hosted by the European Central Bank.
The British Bankers’ Association (BBA) released data on Monday morning showing that consumer borrowing increased at its slowest pace in 18 months. BBA data also showed mortgage approvals in May were at their lowest monthly rate since September last year.
The euro was down against the pound, EUR/GBP was 0.8780, down 0.22% following news of a strengthened UK government. Data from the euro-zone showed German Ifo business confidence at a record high.
Against the New Zealand dollar. the pound was up 0.34%, GBP/NZD was 1.7521. The pound made smaller gains against the Australian dollar, GBP/AUD was up 0.09% at 1.6825.
Sterling also made gains against safe haven currencies. Against the Japanese yen, sterling was 142.25, up 0.47%. While GBP/CHF was up 0.52% at 1.2401.
A vote on the Queen's Speech on Thursday will determine the strength of Theresa May's Conservative government.