LONDON: The British pound fell on Wednesday on growing concern that the Brexit transition period will end without a deal between Britain and the EU, and on the foggy economic prospects for the country as it looks to emerge from its coronavirus lockdown.
The fact that the United Kingdom, now out of the European Union, will not be part of the bloc's 750 billion euro recovery package "is not helping the pound," said Kenneth Broux, head of corporate research at Societe Generale.
On top of that, euro/sterling may be bouncing off the lows it fell to recently when central banks were possibly rebalancing their reserve requirements, Broux said.
Britain's debt levels are rising as it scrambles for ways to prevent a possible wave of Covid-19-induced unemployment. Broux said flash Purchasing Managers' Index (PMI) readings for July this week are likely to highlight the divergence between Britain and the continent's big economies.
Data on Tuesday showed British government borrowing hit a record 127.9 billion pounds ($162 billion) in the first three months of the financial year that began on April 1.
Sterling was last trading flat versus the dollar at $1.2736 but versus a broadly stronger euro it was 0.5% lower at 90.98 pence. Broux said it was unlikely that euro/sterling was establishing a new range above 90, however, as those levels "typically don't endure a long time".
Some of the declines in the British currency have been attributed to worries around Britain's break with the EU.
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