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Sterling sinks to 20-day low vs stronger euro, speculative short positions ease

Credit: REUTERS/THOMAS WHITE

The pound was broadly flat against the dollar in early London trading on Monday but was down against a stronger euro, which hit 19-week highs on reports of progress at the European Union summit.

Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

LONDON, July 20 - The pound was broadly flat against the dollar in early London trading on Monday but was down against a stronger euro, which hit 19-week highs on reports of progress at the European Union summit.

Since Friday, EU leaders have been meeting to thrash out plans for an EU-wide coronavirus recovery fund. Signs of progress in negotiations saw the euro hit a 19-week high, pushing euro-sterling to a 20-day high around 0604 GMT.

As a new round of Brexit negotiations between Britain and the EU begin, hopes for a trade deal are fading fast. The pound is a laggard among G10 currencies because of uncertainty over the country's economic outlook.

"Incoherent government policy on COVID, the 2nd worst COVID death rate by population in the world, high frequency data that indicates a more subdued recovery, a budget deficit profile that is worse than most other major economies and rising Brexit uncertainties all point to the pound being singled out as higher risk than most other G10 currencies," wrote Lee Hardman, currency analyst at MUFG.

Versus the dollar, sterling changed hands at $1.2573 at 0803 GMT, broadly flat on the day, having fallen overnight then recovered from around 0400 GMT GBP=D3.

Against the euro, the pound was at 91.08 pence per euro, down around 0.2% since New York's close EURGBP=D3. Euro-sterling hit a 20-day high of 91.38 pence at 0604 GMT.

The speculative market's net short position on the pound got smaller from a second week in a row in the week to July 14, according to CFTC futures data. But the market is still as bearish on the pound as it was in December 2019. 1096742NNET

Britain's COVID-19 death toll is the highest in Europe, but the country has begun to lift lockdown measures as case numbers and infection rates fall.

Last week, the Bank of England's governor, Andrew Bailey, said Britain's economy was starting to recover from its coronavirus lockdown but some job-intense sectors remained weak and the longer-term outlook was unclear.

Nearly half of Britain's biggest companies think it will take until the second half of 2021 before business recovers from the coronavirus pandemic, survey data on Monday showed. ]

Tensions between China and Britain escalated over the weekend, with British newspapers reporting that London will on Monday suspend its extradition treaty with Hong Kong.

The Chinese ambassador said China will respond resolutely to any sanctions imposed by the British government on Chinese officials.

(Reporting by Elizabeth Howcroft; Editing by Angus MacSwan)

((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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