Sterling on track for best week vs dollar since end of March

The pound rose to a three-month high against the dollar in early trading on Friday and was set for its biggest weekly gain since the end of March, as the dollar weakened and the Bank of England played down the prospect of negative rates.

The pound has gained 5% against the dollar since reaching a low of $1.2075 in mid-May. It been weighed down by Britain's high COVID-19 death toll, as well as Brexit-related risks, the prospect of negative interest rates and the country's growing debt pile. But it was boosted when the Bank of England's executive director for markets said on Thursday that a negative interest rate would not be introduced in the near term.

Kit Juckes, a strategist at Societe Generale, said that sterling's strengthening on Friday was about 70% due to fears of negative rates being calmed and 30% due to the dollar's weakness, as global markets become more optimistic about an economic recovery. Sterling reached a three-month high of $1.2690 at 0743 GMT, having strengthened overnight. It then fell back to $1.2630 by 1000 GMT. It has gained around 3 cents since last Friday.

Versus the euro - which was up as a result of Thursday's European Central Bank stimulus announcement - the pound reached as strong as 89.54 pence. The pair was at 89.735 at 1000 GMT, up around 0.3% on the day. The fourth round of Brexit trade deal talks between Britain and the European Union is due to conclude on Friday. Britain has until June 30 to request an extension for the transition period, which is currently set to end in December 2020.

"EUR/GBP is back to 0.90 and could trade a little higher when it should be confirmed later today that both sides have made little progress in Brexit talks," wrote ING strategists in a note to clients. Societe Generale's Juckes said that the risk of not reaching a deal was in the background, but added: "I think the market thinks there's still a better than 50% chance that we'll muddle through again."

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