Sterling hits 1-week low vs dollar as risk appetite ebbs

Expectations of a large U.S. fiscal stimulus package from President Joe Biden's new administration has fuelled risk sentiment in markets in recent weeks, benefiting the pound, which has hit 2-1/2 year highs against a weakened dollar. Sterling also hit its highest against the euro since May 2020 last week, with analysts attributing the pound's gains to a slower COVID-19 vaccine rollout in the European Union than in Britain.


Reuters | Updated: 26-01-2021 16:54 IST | Created: 26-01-2021 16:33 IST
Sterling hits 1-week low vs dollar as risk appetite ebbs
Representative image Image Credit: ANI

Sterling fell to its lowest in a week against the dollar and traded near one-week lows against the euro on Tuesday as subdued risk sentiment across broader asset markets weighed on the currency.

Equity markets as measured by MSCI's All Country World Index and Wall Street futures were lower, giving the dollar a lift, while riskier currencies pulled back. Expectations of a large U.S. fiscal stimulus package from President Joe Biden's new administration has fuelled risk sentiment in markets in recent weeks, benefiting the pound, which has hit 2-1/2 year highs against a weakened dollar.

Sterling also hit its highest against the euro since May 2020 last week, with analysts attributing the pound's gains to a slower COVID-19 vaccine rollout in the European Union than in Britain. But barring a jump in European stocks, a pullback in broader risk sentiment on Tuesday - on concerns that the U.S. fiscal package might hit snags - outweighed the lack of a negative surprise from UK labour market data and pushed the pound lower.

U.S. Democrats are still trying to convince Republican lawmakers of the need for more stimulus, raising questions over when and in what form a package will be approved. "It's a function of the broader risk dynamic so I think sterling is still trading rather more on risk orientation than it is the domestic fundamental story," said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, adding that the market was not overtly concerned with the labour market data.

"That is the overarching issue with obviously equity sentiment looking far less robust, with question marks raised about the process of the U.S. stimulus package." By 1035 GMT, sterling was down 0.2% against the dollar at $1.3651 and flat against the euro at 88.82 pence . It earlier fell to $1.3610 against the dollar, its lowest in a week.

Data on Tuesday showed Britain's unemployment rate hit its highest in nearly five years in the three months to November when coronavirus cases began to rise for a second time and most of the country returned to a partial lockdown. Redundancies touched a record high, taking the unemployment rate to 5.0%, its highest since mid-2016, according to official data, although the increase was slightly weaker than economists' forecasts.

"The UK labour market report did not provide any negative surprise this morning (November unemployment was modestly lower vs expectations, while weekly earnings turned higher), suggesting a day of calm for sterling today," ING said in a note. "Euro-sterling to range trade around the 89 pence level."

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

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