Sterling rises 0.5pc versus weaker dollar, flat versus euro

LONDON, May 29 ― The pound rose around half a per cent against a weaker dollar yesterday, but was little changed against the euro, as Brexit-related risks and speculation about negative interest rates continue to limit the pound's gains.

The safe-haven dollar fell to a near two-month low as global risk appetite was boosted by investors' optimism about economies re-opening. A €750 billion (RM3.6 trillion) stimulus plan in Europe lifted regional stock indices and the euro.

The pound gained as much as 0.6 per cent against the dollar, reaching US$1.2335 at 1455 GMT. It was last at US$1.2314, up around 0.4 per cent.

Versus the euro, the pound was broadly flat, at 89.75 pence .

Before coronavirus, the last time cable was this low was in early October, when markets feared a no-deal Brexit was imminent.

The market has turned increasingly short on sterling for the last 11 weeks straight, according to weekly futures data .

“Sterling's only support is the size of the short positions, and thin month-end markets magnify that support, but that doesn't change the fundamentals,” Societe Generale strategist Kit Juckes wrote in a note to clients.

The pound is being held down by several factors: a lack of progress in EU trade talks, speculation about negative interest rates in Britain, a deep recession and a growing pile of debt.

Sterling fell 1 per cent on Wednesday after Britain told the European Union on Wednesday it needed to break a fundamental impasse to clinch a Brexit trade deal by the end of the year.

Britain has the worst Covid-19 death toll in Europe. A Covid-19 test and trace service began in England yesterday to allow the loosening of lockdown measures for most of the population.

But nearly half of businesses in Britain that have temporarily suspended their operations because of the coronavirus lockdown are unsure when they will re-open.

Britain's economy is unlikely to recover fully from the “searing experience” of the coronavirus in the next two to three years, the Bank of England's Michael Saunders warned yesterday, in the gloomiest medium-term assessment to date from a UK policymaker.

Saunders also said he would not necessarily rule out negative rates, and that too much stimulus was better than too little.

“The question whether the BoE key rate is slightly above or below zero does not really matter,” Ulrich Leuchtmann, head of FX and commodity research at Commerzbank wrote in a note to clients.

“Monetary policy in the UK ― just like almost everywhere else in the world ― has pretty much reached the end of the line.” ― Reuters