LONDON: Sterling rose to a five-month high against the dollar and headed for $1.32 after the Bank of England struck a less pessimistic tone on the coronavirus-battered British economy. Much of the gain in the pound came shortly after the BoE announcement. The currency rose as much as 0.5%, extending its run to a high of $1.3184, its highest since March 9, before easing to $1.3144, up 0.2% on the day.
Against the euro, it rose 0.5% at 90.01 pence, having earlier risen to a high of 89.85 pence. The central bank said the British economy would not recover to its size at the end of 2019 until the end of next year, later than its earlier estimate of a recovery by the second half of 2021. But its projections for 2020 were less grim than in May.
"Overall, the BoE's economic outlook is relatively less dovish than expected and the absence of a strong signal in favour of negative rates opens the door for further pound gains in the near-term," MUFG analysts told clients. Sterling has risen 8% against the US dollar since July, with short positions in the Brexit-battered currency declining as traders shifted their negative outlook to the dollar.
The pound has reversed nearly all the losses sustained against the dollar following a selloff in March and April fuelled by the pandemic. Its gains have been more laboured against the euro and the yen. "Today's update from the BoE has no doubt triggered a little more short-covering," said Chris Turner, ING's global head of markets.
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