Sterling sheds gains against dollar as Brexit, economy weigh

The pound shed early gains against a weaker dollar on Friday to be flat on the day as a combination of stronger appetite for risk, unprecedentedly weak economic data and Brexit concerns weighed on the British currency. The pound had a poor week, slipping back after it had risen 3.9% against the dollar in 10 consecutive days of gains.

The pound shed early gains against a weaker dollar on Friday to be flat on the day as a combination of stronger appetite for risk, unprecedentedly weak economic data and Brexit concerns weighed on the British currency.

The pound had a poor week, slipping back after it had risen 3.9% against the dollar in 10 consecutive days of gains. It recovered against the dollar on Friday, touching $1.2653 in earlier trade, before flattening back to $1.2604 at 1247 GMT. Against the euro, the pound was also flat at 89.70 pence.

Analysts suggested sterling was behaving like a risk currency, strengthening when improving global market sentiment weakens demand for the safe-haven dollar. Vasileios Gkionakis, head of FX strategy at Lombard Odier, said the pound's losses this week made sense because market participants had been complacent in view of ongoing Brexit risks and the coronavirus-induced economic slump.

"Little progress has been made on Brexit... the UK economy is going to lag the rest of the developed markets, so levels at $1.27-$1.28 were a bit of a stretch for sterling," he said. Britain's economy shrank by a quarter over March and April, data showed on Friday.

The country has also made very little headway in talks about a future trade relationship with the European Union, negotiators have said, and it confirmed on Friday it would not extend a Brexit transition period that is due to end on January 1. Asset manager Candriam told clients that it expected "further depreciation" of the pound as their view on Britain was negative given its performance in managing the COVID-19 crisis and a lack of progress in sealing a deal with the EU.

"This all alongside a massive fiscal deficit, inflated debt to GDP and a current account deficit which requires financing," Candriam said. The British government has faced heavy criticism for its handling of the pandemic, which killed more than 50,000 people in the country.

From next week, much of Britain's retail sector is authorised to reopen as long as shops follow social distancing rules.