Sterling volatile as investors await U.S. election outcome

LONDON (Reuters) - The British pound was volatile on Wednesday as investors waited for the outcome of the U.S. presidential election, though the currency was weaker for most of the day as traders sold riskier currencies.

FILE PHOTO: Pound Sterling notes and change are seen inside a cash resgister in a coffee shop in Manchester, Britain, Septem,ber 21, 2018. REUTERS/Phil Noble

Democrat Joe Biden was back as favourite to win the U.S. presidential election in online betting markets, according to Britain-based Smarkets Exchange. President Donald Trump had been favourite overnight.

The tight race and uncertainty over the outcome kept investors on their toes, and they poured money into safe-haven assets such as the U.S. dollar and offloaded riskier currencies such as the British pound.

“Sterling is now trading as if it’s more open to global growth and global risk ... similar to what we see in the Norwegian crown or Australian dollar,” said Simon Harvey, currency analyst at broker Monex.

The Nokkie and the Aussie usually swing in correlation with investor risk appetite, and moves in those currencies are often exacerbated by that.

Sterling “used to be trading roughly in line with the euro or Japanese yen” but “now we’re seeing these big moves in cable (sterling/dollar),” Harvey said.

Against the dollar, the British currency was down by 0.6% at $1.2990 in late London trading. Earlier in the day, it fell by more than 1% before recording most of those losses to hit a two-week high of $1.3140.

Sterling weakened 0.5% versus the euro at 90.16 pence. Trading in euro/sterling was less volatile on Wednesday.

Overnight implied volatility gauges in sterling have come off the multi-month highs they reached on Monday, indicating the cost of protecting against unexpected near-term moves in the currency has fallen.

For now, traders have put aside Britain-European Union trade negotiations, with both sides recommending a new round of talks on a post-Brexit trade deal begin in London this weekend, The Times reported.

Britain said it was focused on its future trade ties with the United States. An excellent trade deal can be secured with the United States and good progress has been made in reaching one, British foreign minister Dominic Raab said.

The impact of COVID-19 on the British economy was also on investors’ minds. British finance minister Rishi Sunak will make a general statement on the government’s COVID-19 support scheme for the second wave of the pandemic on Thursday.

Prime Minister Boris Johnson promised on Wednesday to do whatever it takes to support businesses and help them bounce back from the pandemic.

Reporting by Olga Cotaga, editing by Larry King and Timothy Heritage