June 16, 2020 / 9:28 AM / 18 days ago

Sterling gains 0.5% against euro, Brexit talks lend support

LONDON (Reuters) - The pound rose against the euro on Tuesday as a combination of plans to step up Brexit talks and better than feared jobs data helped the British currency.

FILE PHOTO: UK pound coins plunge into water in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic

Britain’s jobless rate unexpectedly held at 3.9% over the three months to April as firms turned to the government’s job retention scheme to keep employees on their books during a record slump in economic output because of the coronavirus lockdown.

The pound, however, weakened against the dollar, giving up gains earlier in the day, as the greenback strengthened after the United States reported a record increase in retail sales in May after two straight months of declines.

The pound has lost almost 2% against the dollar this month, but recovered some ground earlier on Tuesday, touching $1.2682, before falling 0.2% to $1.2587 by 1529 GMT. Against the euro, the pound was up 0.5% at 89.44 pence.

Kit Juckes, head of FX strategy at Société Générale said more positive signs from Brexit talks between Britain and the European Union gave sterling a boost.

Leaders from Britain and the European Union agreed on Monday that talks on their future relationship should be stepped up, with Prime Minister Boris Johnson suggesting an agreement could be reached in July.

With a status-quo transition deal set to expire at the end of the year, Britain is seeking a free-trade agreement with the EU, which it left on Jan. 31, but negotiators have so far made little progress.

“Sterling is close to the worst levels it’s been in your whole life, and miles away from the best levels: it’s not the news is good, but bad news is into the price. I think that’s a frustrating currency,” Juckes said.

This week, investors are also awaiting the Bank of England’s meeting on Thursday, when it is expected to announce a fresh increase of at least 100 billion pounds in its bond-buying firepower.

BoE Governor Andrew Bailey said the UK central bank had to be ready to do more to help the economy because of the risk of long-term damage caused by the coronavirus lockdown.

Graphic: World FX rates in 2020 - here

Graphic: Trade-weighted sterling since Brexit vote - here

Editing by Barbara Lewis and Susan Fenton

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