UPDATE 1-Sterling on track for third straight daily fall versus dollar

It had dropped as low as 86.44 pence on Tuesday, its lowest since mid-September. Domestic political developments in Britain and ⁠the chance of a closer relationship ‌with Europe are also under the spotlight as this would provide greater access to the EU single market, potentially boosting exports and economic growth in the UK.

Sterling ‌was set for a third consecutive decline versus a strengthening dollar on Thursday, as retreating risk appetite stripped away support for the British currency. The greenback edged up after mixed U.S. economic data left markets cautious ahead ⁠of Friday's nonfarm payrolls report.

European shares extended losses on Thursday after downbeat retail earnings from top companies, while softer gold and copper prices pressured market sentiment. Sterling was down 0.1% at $1.3444 against the greenback , after hitting $1.3567 on Tuesday, its highest level since September 18.

STERLING MIGHT PERFORM BETTER THAN EXPECTED Analysts ​said market participants had been too gloomy about the outlook for UK growth and that sterling might perform better than expected in 2026 ‍amid fewer concerns about the state of the economy.

However, in the near term sterling moves will be dollar-driven, as clearer indications about the UK economy will have to wait for gross domestic product data due next week and jobs data the week after. "If we look at the performance of the pound right at the start of the year, ⁠it's ‌doing really quite well even though there ⁠wasn't an awful lot of data and I think that is still a response to the fact that ahead of the budget the market had built up an ‍awful lot of short positions," said Jane Foley, head of forex strategy at Rabobank.

"After the budget through December it started to correct those and I think that ​carried on into the first days of the month," she added, arguing that investors will be closely watching new economic data. A ⁠reduction in UK fiscal and political risks has supported the British currency since finance minister Rachel Reeves presented the budget in November.

"Taken together recent UK data confirms that consumers were perhaps ⁠less adversely impacted by the budget headlines than had previously been feared, the flip side being that scope for a further strengthening in consumption growth might be rather more limited going forward than had been thought likely," said Jeremy Batstone-Carr, an economist at Raymond James. The euro ⁠rose 0.10% to 86.87 pence. It had dropped as low as 86.44 pence on Tuesday, its lowest since mid-September.

Domestic political developments in Britain and ⁠the chance of a closer relationship ‌with Europe are also under the spotlight as this would provide greater access to the EU single market, potentially boosting exports and economic growth in the UK. Prime Minister Keir Starmer said on Sunday that Britain ⁠should seek closer alignment with the European single market. (reporting by Stefano Rebaudo and Sophie Kinderlin; editing ‍by Gareth Jones and Ed Osmond)

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