Sterling gains as risk sentiment improves

Demand for riskier assets on Tuesday kept sterling close to the two-month high it reached the day before, with investors also hoping that this week's Brexit talks will result in a deal. News on Monday that AstraZeneca's vaccine for the coronavirus could be around 90% effective boosted sentiment.

Demand for riskier assets on Tuesday kept sterling close to the two-month high it reached the day before, with investors also hoping that this week's Brexit talks will result in a deal.

News on Monday that AstraZeneca's vaccine for the coronavirus could be around 90% effective boosted sentiment. British Prime Minister Boris Johnson said on Monday that he hoped almost all Britons at high risk from COVID would be vaccinated against the disease by Easter. England will introduce a new system on Dec. 15 allowing passengers arriving from high-risk countries to take a COVID-19 test after five days of quarantine and to be released from any further self-isolation if they test negative.

In addition, the one-month full lockdown in England is due to end on Dec. 2, and transport secretary Grant Shapps is set to scrap blanket travel quarantine restrictions by Christmas so people can travel to high-risk countries to visit relatives. The November flash purchasing managers index came in better than expected on Monday, adding to the optimism, although the number remained below 50, which represents contraction.

Sterling was stronger in early morning trading, but gave back some of those gains after data showed that British retail sales have fallen by the most since June during this month's lockdown across the bulk of the country. Month-end investment flows have curtailed gains in sterling and the pound should be trading higher on these developments, said Marshall Gittler, head of investment research at BDSwiss Group.

"I think the pound could continue the gains next month, depending of course on how the Brexit talks go," he said. The British pound was last up 0.2% at $1.3350, close to $1.3396, its highest since Sept. 2, reached on Monday. It was earlier at $1.3380. If it were to rise above $1.3481, the surge would propel it to nearly a one-year high.

Versus the euro, the moves in the pound were more contained, with the British currency trading down 0.1% versus the common currency at 88.97 pence. London and Brussels this week continue their negotiations to agree a deal on their future trading relationship, though time is now running very short as Britain's post-Brexit transition period ends in fewer than six weeks.

Without an agreement, Britain would revert to trading with the EU on World Trade Organisation rules, an outcome both sides believe would disrupt their economies. Most investors believe a deal will be clinched, even if it is a bare-bones one that leaves some trade discussions for later.

Traders were buying more put sterling options - as seen in the one-month risk reversals levels - which usually means more people are expecting the pound to fall than those expecting it to rise in the next few weeks. The levels are not as low as they were in mid-September, though.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)