Sterling rises versus weaker euro; dips back below $1.30

LONDON: Sterling rose against a weaker euro but fell versus the dollar on Thursday after the $1.30 level reached late in the previous session did not hold, with Brexit and the economic fallout from coronavirus weighing on the currency.

Global market sentiment was boosted late on Wednesday after the head of the US Federal Reserve, Jerome Powell, said the bank would "do what we can, and for as long as it takes" to limit the coronavirus damage to the United States' economy, but optimism was tempered by record-high COVID-19 infections.

The dollar fell while Powell was speaking, with the pound reaching $1.30 for the first time since early March, but the dollar recouped some recent losses early on Thursday.

Versus the dollar, the pound was at $1.2984 at 0809 GMT, down 0.1% since New York's close. It was up around 0.2% versus a weaker euro, at 90.535 pence.

"GBP investors remain in a cautious wait-and-see approach as UK-EU trade negotiations (the key driver of the currency) appear at a standstill," wrote ING strategists in a note to clients, adding that cable is being mostly driven by dollar moves in the meantime.

"Looking at EUR/GBP, the pair does not appear overly stretched and more potential GBP stress as post-Brexit uncertainty rises points at further upside potential, in our view," they said.

Investors are generally bearish on the pound as the UK and European Union have made little progress on post-Brexit trade arrangements. Britain left the EU in January and its transition period ends on December 31.

The EU's banking watchdog said on Wednesday said that banks using Britain as a gateway to the EU must put in place their plans for serving EU customers before the transition period ends.

The outlook for the UK is also hampered by Britain's high COVID-19 death toll.

British Health Secretary Matt Hancock said the number of coronavirus cases in the country is no longer falling, and is at best flat.

He also said he was worried about a second wave of coronavirus infections in Europe and that the government would not hesitate to bring back quarantine measures if necessary to keep Britain safe.

Deutsche Bank strategists wrote in a note to clients they expected to see sterling weakness over the rest of the year and said that sterling shorts are best expressed against the euro or yen.