Pound sterling high for over a month as dollar plunges on accommodative Fed

By Ritvik Carvalho

LONDON (Reuters) – The pound hit its highest level in more than a month against the dollar on Thursday, extending gains driven by lower coronavirus cases in Britain and as an accommodating US Federal Reserve weighed on the greenback.

The British currency has gained for five consecutive sessions and was up 1.4% Thursday against the dollar on the week. As of 3:22 p.m. GMT, the pound was up 0.5% on the day to $ 1.3869, after hitting its highest level since June 24 against the dollar.

The dollar also fell after Fed Chairman Jerome Powell remarked that the rate hikes were “very long term.”

Against a much stronger euro, the pound gained 0.1% to 85.10 pence per euro.

Although the number of COVID-19 infections in Britain rose again on Wednesday for the first time in a week compared to the previous day, they were still down week after week and there was little reaction from the pound.

“The pound sterling continues to reap the rewards from the slowdown in COVID-19 cases, in turn reversing previous market concerns about another significant wave,” ING said in a note to clients.

“This means that a further downward adjustment in the speculative positioning of the British Pound is unlikely. On the contrary, there is room to rebuild the long positions of the British Pound after their significant decline in recent months. “

Speculators went net short on the British pound for the first time since December 2020 in the week until last Tuesday, CFTC data showed on Friday. [CFTC/] [IMM/FX]

The performance of the British Pound has tracked global risk sentiment in recent weeks, with the currency’s performance in line with the direction of global equity markets. On Tuesday, however, the pound jumped higher in a seemingly arbitrary move around the daily currency market correction, leaving traders in awe.

Traders will look to the Bank of England next week, which looks set to keep its stimulus at full speed despite two policymakers breaking ranks to suggest its nearly £ 900bn quantitative easing program ( $ 1.2 trillion) may have to end early as inflation accelerates.

A think tank said the UK government should seize hundreds of billions of pounds of hard-to-sell bonds held by the Bank of England to reduce the risk that the BoE’s independence will be called into question in the when to raise interest rates. (Graphic: FX and vaccinations, https://fingfx.thomsonreuters.com/gfx/mkt/egvbknlnkpq/Pasted%20image%201627557471648.png)

(Reporting by Ritvik Carvalho; editing by Barbara Lewis and Nick Macfie)

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