Investing.com -- GBP/USD extended gains from the previous session on Wednesday, amid heavy short covering, as the British Pound continued its rally from 31-year lows against the U.S. Dollar in the wake of last week's stunning Brexit results.
The currency pair surged by more than 1% to an intraday high of 1.3533, before falling slightly back to 1.3436, up 0.0101 or 0.70% at the close of U.S. afternoon trading. Since slipping below 1.32 on Monday to its lowest level since September, 1985, the Pound Sterling has rallied by more than 1.6% against its American counterpart over the last two sessions. Nevertheless, GBP/USD has still crashed by more than 8% over the last week, as the British currency continues to recover from last Friday's massive sell-off – its largest one-session decline on record.
In Brussels, European Council president Donald Tusk told reporters outside the EU Summit that it will not start the divorce process on any future negotiations with the U.K. until the country invokes Article 50 of the Lisbon Treaty. It came one day after U.K. prime minister David Cameron said he will leave the task to his successor when he steps down from the position by early-September. Once the U.K. summons Article 50, it will initiate formal negotiations with the European Union to leave the European bloc, a process which is expected to take a minimum of two years.
Tusk's stance followed stern comments from German chancellor Angela Merkel just hours earlier. Speaking to reporters outside the Summit, Merkel called the results of the Brexit referendum irreversible, reiterating that she sees "no way back" for the U.K. following the surprising vote. At the same time, France president Francois Hollande warned that it will be difficult for the U.K. to gain access to the EU's single market without "applying the rules of freedom of movement," a potential sticking point between the sides.
At the end of the closely-watched two-day summit, EU officials announced that its 27 members will meet next in September in Bratislava, Slovakia for informal talks regarding the U.K.'s potential departure from the bloc. The U.K. will not be invited to participate in the discussions.
Elsewhere, U.S. president Barack Obama praised top central bankers and finance ministers for their efforts in helping calm global markets since the unexpected decision. While speaking at a meeting of North American leaders in Ottawa, Obama indicated that markets worldwide appear to be holding "steady following the initial shock of the Leave campaign's victory. Obama urged his European counterparts to "catch their breath," and proceed in an orderly, transparent manner that is easily understandable by voters throughout the euro area.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.50% to an intraday low of 95.62, before rallying slightly to 95.69 at the close of U.S. afternoon trading. Despite reaching three-month highs earlier this week, the index is still down by more than 4% since early-December.
Yields on the U.S. 10-Year surged five basis points to 1.52%, while yields on the UK 10-Year inched up one basis point to 0.95%. Government bond yields on 10-year U.S. Treasuries are still down 23 basis points since polls closed in the U.K. referendum last Thursday.