LONDON — Sterling rose above $1.24 on Monday, recovering from a three-week low during Asian trading, helped by a weaker dollar, hopes of a Brexit trade deal and expectations of better economic data.
Britain has until the end of the year to sign a new trade agreement with the European Union, when the transition period following its exit from the bloc comes to an end. Although much remains to be discussed, both parties have signaled progress.
Last week, French President Emmanuel Macron told British Prime Minister Boris Johnson that France still supported reaching a deal on Brexit and EU chief Ursula von der Leyen stressed “willingness to undertake all possible efforts to come to an agreement.”
The pound was last up 0.6% at $1.2425, having fallen earlier to $1.2337, its lowest since June 1. Against the euro, sterling was up 0.2% at 90.26 pence.
“In the two talks that Boris has last week there was real progress, both sides came out more optimistic and it seems that they are trying to compromise on all the open issues,” said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America Merrill Lynch, adding “the chances for a trade deal have improved.”
On top of that, “now it’s almost a given that we will see better data,” simply because recent economic indicators have been so dire due to the lockdown imposed to fight the coronavirus pandemic, Vamvakidis said.
Britain is expected to announce new measures on COVID-19 this week and could ease the two-meter social distancing rule to allow pubs and restaurants to accommodate more people.
The Daily Telegraph newspaper reported late on Saturday that Johnson would announce a new “one meter plus” rule.
Some analysts believe the pound should have risen more, especially after the Bank of England last week dampened expectations for negative rates and slowed the pace of quantitative easing in response to improved market functioning and signs of economic recovery over the past month.
“Brexit and negative policy rate concerns have been two important factors which have weighed on the pound in recent months, so it was surprising that there wasn’t even a relief pound rally as downside risks have eased,” said Lee Hardman, currency analyst at MUFG.
(Reporting by Olga Cotaga; Editing by Mark Potter)