Sterling bucks recent trends, falling against euro and dollar

LONDON (Reuters) - The pound extended its falls against the dollar on Thursday and was set for its biggest fall against the euro in three weeks, hit by a stronger dollar, bleak economic outlook and lack of progress in Brexit negotiations.

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Having risen versus the weaker dollar throughout July and August, the pound fell as the dollar strengthened in the first days of September.

Sterling extended these losses against the dollar on Thursday, down around 0.5% on the day at $1.3284 by 1449 GMT.

The pound also fell versus the euro, down around 0.4% at 89.13 pence per euro.

After the euro hit $1.20 earlier this week, it has retreated as the market grew concerned that euro strength was a problem for the European Central Bank.

Kit Juckes, head of FX strategy at Societe Generale, said that Wednesday’s slump in euro-sterling, to as low as 0.88745, was a correction after the euro rally, and that when the focus returns to domestic factors, euro-sterling will rise back above 90.

“This is a pair that ought to be trading somewhere in the low 90s really while we wait to find out what kind of Brexit we’re finally going to get and then see what kind of an economic recovery we get,” he said.

JPMorgan said that there was about a one in three chance of the UK’s transition period with the European Union ending without a trade deal being agreed.

The European Union’s chief Brexit negotiator said that Britain had not changed its position on key sticking points in Brexit trade talks and that he was “worried and disappointed”.

But a spokesman for Prime Minister Boris Johnson said these comments were misleading.

“Over the past few days sterling was able to benefit from a EUR and USD weakness. At the same time investors seem to be ignoring idiosyncratic factors,” wrote Commerzbank FX strategist Thu Lan Nguyen in a note to clients.

“Things are still not looking great as far as Brexit is concerned,” she said, referring specifically to comments by Bank of England Governor Andrew Bailey about a lack of progress on the issue of equivalence for the financial services sector.

“Following four years of Brexit drama, the market seems immune to this. However, GBP investors will be unable to ignore the Brexit risk forever,” Nguyen said.

The Bank of England’s deputy governor, Dave Ramsden, said on Wednesday that the level of British economic output would permanently be about 1.5 percentage points lower than it would be had it not been for the pandemic.

More than one-in-10 British shops stand empty.

Reporting by Elizabeth Howcroft; Editing by William Maclean and Lisa Shumaker