Sterling falls below $1.27 after 10-day winning streak vs dollar

LONDON: The pound fell against the dollar and euro overnight before steadying in early London trading on Thursday, with the dollar lifted by a bleak economic outlook from the Federal Reserve, and Brexit and the risk of negative rates continuing to weigh on sterling.

The dollar bounced against riskier currencies after the US Fed's economic outlook spooked investors.

Sterling had risen against the dollar for 10 successive days from May 28, behaving as a risk currency and strengthening when market optimism caused the safe-haven dollar to fall.

"Sterling has been rallying against the US dollar. While we see specific reasons for an appreciation of the pound, the move underlines the broader vulnerability of the US dollar, especially as fears over COVID-19 subside," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

This trajectory looked set to end on Thursday, as the pound changed course and fell back below $1.27.

Versus the dollar, the pound fell as much as 0.8pc on the day to $1.2651, having risen to a three-month high above $1.28 on Wednesday.

The pound then edged up from 0710 GMT, reaching $1.2673 by 0800 GMT. Against the euro, the pound fell overnight, then steadied around 0700 GMT. By 0800 GMT it was at 89.64 pence..

The market has its largest net short speculative position on the pound since November 2019 as Brexit and speculation about negative rates pose downside risks.

Britain has left the EU but the main terms of its membership remain in place during a transition period until the end of 2020, by when both sides hope to negotiate a new trade deal.

Britain has until the end of the month to request an extension to the transition period. A fourth round of Brexit negotiations ended with little progress.

Britain is seeking a trading relationship with the European Union that is too close to that of an EU member, EU Brexit negotiator Michel Barnier said on Wednesday, urging London to adjust its demands.

There was an unprecedented range of views in the latest Reuters poll of more than two dozen economists, with the median forecast for an 18.4pc month-on-month plunge in the UK's gross domestic product in April.

A gauge of British house prices hit a 10-year low in May but there are signs that confidence is returning to the market after the government lifted its coronavirus lockdown for buyers and sellers in England, a survey showed on Thursday.