June 5, 2020 / 8:42 AM / a month ago

Sterling surges to new three-month high versus dollar

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

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

By Elizabeth Howcroft

LONDON, June 5 (Reuters) - The pound rose to a new three-month high against the dollar in early trading on Friday and was set for its biggest weekly gain since the end of March, due to the Bank of England playing down the prospect of negative rates soon, and dollar weakness.

The pound has gained 5% against the dollar since a low of $1.2075 in mid-May.

The currency has recently been weighed down by the Britain’s high COVID-19 death toll, as well as Brexit-related risks, the prospect of negative interest rates and the country’s growing debt pile.

But it was boosted when the Bank of England’s executive director for markets said on Thursday that a negative interest rate would not be introduced in the near term.

Kit Juckes, a strategist at Societe Generale, said that sterling’s strengthening on Friday was about 70% due to fears of negative rates being calmed.

About 30% of the gains were attributable to dollar weakness, he said, as global markets become more optimistic about an economic recovery.

The pound hit a three-month high of $1.2690 at 0743 GMT, having strengthened during the overnight session. It has gained more than 3 cents since last Friday.

Versus the euro - which was up as a result of Thursday’s European Central Bank stimulus announcement - the pound had strengthened to 89.54 pence, having gained around 0.5% on the day.

The fourth round of Brexit trade deal talks between Britain and the European Union is due to conclude on Friday. Britain has until June 30 to request an extension for the transition period, which is currently set to end in December 2020.

Societe Generale’s Juckes said that the risk of not reaching a deal was in the background, but added: “I think the market thinks there’s still a better than 50% chance that we’ll muddle through again.” (Reporting by Elizabeth Howcroft; Editing by Pravin Char)

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