April 27, 2020 / 11:31 AM / a month ago

UPDATE 2-Market turns short on sterling for first time since December

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

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Updates, adds prices, comment)

By Elizabeth Howcroft

LONDON, April 27 (Reuters) - The pound rose against both the dollar and the euro on Monday, but futures data showed the market turned bearish on the British currency for the first time since December last year.

Sterling was boosted by improving global risk appetite and hopes that lockdown measures may start to be eased as the number of coronavirus cases in Britain appears to slow.

Britain is now seeing a downward trend in the number of people who are in hospital with the new coronavirus.

Prime Minister Boris Johnson, who returned to work on Monday after recuperating from the virus, must now find a way to ease the lockdown without triggering a deadly wave.

Against a broadly weaker dollar, the pound was up 0.2% at $1.2411, having touched weekly highs earlier in the day . Versus the euro, it rose around 0.1%, to last change hands at 87.34 pence.

In Downing Street on Monday morning, Johnson gave no details of when or how the lockdown measures might ease, but said more would be announced in the coming days.

Striking a cautious tone, he said that a second spike of the virus “would mean not only a new wave of death and disease but also an economic disaster”.

The market turned bearish on the pound for the first time since December 2019, with negative bets on sterling outnumbering positive bets, according to weekly futures data for the week to April 21.

That follows six weeks of investors reducing their sterling long positions.

The pound’s long-term prospects are hampered by risks relating to Brexit, which will come into focus again as soon as coronavirus lockdown measures start to ease.

As trade talks between the European Union and Britain continue via teleconferencing, the British government maintains that it will not extend its transition period beyond the December 2020 deadline, even if a deal has not been reached.

Unlike in 2019 when lawmakers were able to block a no-deal Brexit, Johnson’s large parliamentary majority makes this a real possibility.

“There is obviously a risk that Mr Johnson decides that actually Brexit now looks like small fry compared to what we’re dealing with at the moment so is that not the best time to hold your position and say that you either get a deal struck before the end of this year or there’s no deal,” said George Buckley, chief European economist at Nomura.

“The other way of thinking about it is to say, ‘well if there’s anything that is a reasonable reason to extend the Brexit negotiations then they should do it now because this is clearly one of them’,” he said.

Last week, the EU’s chief negotiator Michel Barnier said that discussions had made little progress. But British government minister Michael Gove said on Monday that the talks can still be concluded within the agreed timescale.

Reporting by Elizabeth Howcroft; Editing by Larry King, Alex Richardson and Giles Elgood

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