June 29, 2020 / 8:54 AM / 17 days ago

Sterling flattens on infrastructure spending promise, Brexit caps gains

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

By Joice Alves

LONDON, June 29(Reuters) - Sterling flattened on Monday from a one-month low touched on Friday against a weaker dollar as Prime Minister Boris Johnson signalled he would double down on plans to increase public investment, but Brexit risks capped the gains.

Speaking in a radio interview, Johnson said that a return to austerity would be a mistake as the country tries to recover from the coronavirus hit to the economy.

Home Secretary (interior minister) Priti Patel said on Sunday that the government would roll out a plan on Tuesday to boost spending in infrastructure.

“Reports are suggesting that GBP is trading stronger on a purported infrastructure boost in the UK,” ING said in a note to clients. But doubts about whether Britain will seal a trade pact with the European Union is set to be the biggest weight on the currency this week, it added.

“We see GBP dominated by EU departure talks, the next round of which take place tomorrow,” ING analysts said.

The pound flattened versus a weakening dollar at $1.2340 at 0840 GMT after the greenback retreated from a one-week high hit on Friday against a basket of currencies, with investors fearing a fresh coronavirus wave in the United States.

Versus the euro, sterling was down 0.3% at 91.20 pence, close to levels it hit on Friday, its lowest against the single currency since March 26.

Little progress has been made in agreeing Britain’s future trading relationship with the EU, which it exited on Jan. 31. Johnson told his Polish counterpart Mateusz Morawiecki on Saturday that Britain would be ready to quit its transitional arrangements with the EU “on Australia terms” if no deal on their future relationship is reached.

Australia has no comprehensive trade deal with the EU. Much of EU-Australia trade follows default World Trade Organisation rules though specific agreements are in place for certain goods.

In a news-heavy weekend, Britain’s most senior civil servant stepped down on Sunday after reports of clashes with Johnson’s top political adviser, part of what is expected to be a wider shake-up of officials at the heart of power.

Investors also have also been cautious over fears of a second wave of coronavirus infections as Johnson announced last week a significant easing of the lockdown in England, saying pubs, restaurants and bars can reopen from July 4. (Editing by Mark Heinrich)

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