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Markets

Sterling recovers against dollar but falls versus euro

Greece, France, Spain, Portugal and Italy have all set out plans to ease lockdown measures in the past few days, bo
29 Apr 2020
  • Greece, France, Spain, Portugal and Italy have all set out plans to ease lockdown measures in the past few days, boosting market optimism about an economic recovery.
  • The lack of information about lifting the lockdown presents a downside risk for the pound, along with the lack of progress in Brexit negotiations.
  • The UK and European Union have restarted Brexit negotiations via teleconferencing, but talks have reached an impasse.

LONDON: Sterling recovered versus the dollar but remained down against the euro on Wednesday, as Britain showed no signs of easing its coronavirus lockdown, even as other European countries laid out plans to re-open their economies.

Greece, France, Spain, Portugal and Italy have all set out plans to ease lockdown measures in the past few days, boosting market optimism about an economic recovery.

But Britain, which is expected to have one of the worst coronavirus death tolls in Europe, has said it is too early to talk of easing the lockdown and that it will not review social distancing guidelines until May 7.

A contact-tracing app which would be essential in easing the lockdown in Britain could be ready in two to three weeks, a senior official said on Tuesday, leading investors to estimate that the lockdown will continue until at least the second half of May.

The lack of information about lifting the lockdown presents a downside risk for the pound, along with the lack of progress in Brexit negotiations, according to Rabobank senior FX strategist Jane Foley.

"I think that there's some concerns that ... we have been fairly rudderless, and that compared with some other countries there seems to be a delay in the UK in coming forward with a plan with respect to shutdowns," she said.

"Coupled with the confusion about Brexit and the fact there is no indication from the government that they want to extend the transition phase, there is more uncertainty potentially on the way," she added.

Cable fell to a low of $1.2391, before recovering to $1.2423, broadly flat on the day. The dollar fell when Gilead Sciences reported an encouraging update on a potential treatment for the coronavirus.

Against the euro, the pound fell around half a percent, to 87.545 pence, and was last at 87.365 pence, down around 0.3% since New York's close..

Kit Juckes, head of FX strategy at Societe Generale wrote in a note to clients: "As for EUR/GBP, at 0.87 that pair puts GBP a little cheap to fair value but given uncertainty surrounding Brexit negotiations, that seems eminently reasonable and it's not clear that going short EUR/GBP for a 2% gain is worth the tail risks attached."

The UK and European Union have restarted Brexit negotiations via teleconferencing, but talks have reached an impasse, according to Brussels officials.

Britain's foreign minister, Dominic Raab, said on Wednesday that the government's position was unchanged and that it would not seek an extension to the December 2020 deadline.

Next week, the Bank of England faces the nearly impossible task of putting numbers on the scale of the coronavirus recession, when it must also decide whether to expand its already huge 645 billion pound bond-buying programme.