Currencies

Sterling rises above $1.27; driven by dollar moves

U.S. dollar banknotes.
Liu Jie | Xinhua via Getty

The pound was driven by dollar moves on Tuesday, rising back above $1.27 but down half a percent against the euro, as shifts in global risk appetite played a bigger role for sterling than domestic issues such as Brexit.

The pound has risen 3.1% against the dollar this month, clearing $1.27 for the first time since March, as several countries emerge from coronavirus lockdowns, weakening demand for the safe-haven U.S. currency.

When the dollar strengthened in early London trading, cable fell as much as 0.8%. The dollar then weakened, causing sterling to recover its losses, back above $1.27.

"To me the pound is not really doing anything – there's some pretty big movements but a lot of it's been passive (...based on) what's going on elsewhere," said John Hardy, head of FX strategy at Saxo Bank.

"So you saw cable broke a major resistance level but it's not because sterling's doing anything, it's only because the dollar's weak," he added.

The pound hit a new three-month high of $1.2757 in overnight trading, before falling to as low as $1.2620 at 0832 GMT. It then rose steadily, to trade at $1.2735 at 1520 GMT.

Against the euro, the pound weakened gradually throughout the day and was down around 0.5% at 89.20 pence at 1520 GMT.

Investors are still waiting for more information about the proposed re-opening of the UK economy.

Britain introduced a 14-day quarantine for international arrivals on Monday. Airlines want this scrapped, as they say it could lead to more job losses just as they were hoping to launch a recovery from COVID-19.

So-called "air bridges" - corridors which allow unrestricted movement between Britain and some other countries - will open from June 29, a UK tourism lobby group said on Tuesday, citing assurances it said it had received from senior government sources.

But a foreign ministry source in Spain, the most popular holiday destination for Britons, told Reuters there were no discussions with Britain on a travel corridor, and Madrid hoped for a European Union-wide travel deal.

The fourth round of trade talks between Britain and the EU finished with both sides saying little progress had been made. Britain has until the end of July to request an extension to the transition period which is due to end after December 2020.

"I suspect the pressure near-term might be a little more downside for sterling," Saxo Bank's Hardy said. "We need to see something ahead of the Brexit transition period end."

Japan and Britain agreed to start talks on an early trade deal, Japan's foreign ministry said.