British pound fades as new lockdown weighs on struggling economy

LONDON (Reuters) – Sterling stabilized on Tuesday, but held well below an over 2-1 / 2 year high of $ 1.37 reached in the previous session, as a new lockdown has deflated post-Brexit optimism.

Prime Minister Boris Johnson has ordered England to put in place a new national lockdown to contain an increase in the number of COVID-19 cases that threatens to overwhelm parts of the health system before a vaccination program is rolled out reaches critical mass.

Some analysts say the new measures, which could cost around 10% of economic output as long as they last, deflated any lingering uptrend around the UK currency and pushed it down 1% from May highs. 2018.

“The successful conclusion of Brexit negotiations offered only a momentary pause with the pound returning to landfills after Johnson ordered an economically disastrous third national lockdown for England,” said Marshall Gittler, strategist at BDSwiss Group.

At the start of trading in London, the pound was trading at $ 1.3560, up 0.1% against an overall weak US dollar. Against the euro, the pound lost 0.4% to 90.51 pence.

The expected blow to the economy has raised expectations for the Bank of England to announce further policy easing.

Money markets now expect the central bank to cut benchmark interest rates as early as May from an estimate in August just after the Brexit deal was struck.

The pound had strengthened against the dollar and the euro after the Brexit trade deal of December 24, which set rules for fishing, agriculture and other industries.

Despite the pound’s gains in recent days, market participants are not bullish on the currency’s outlook. Long net bets on the pound against the US dollar are only a fraction of what they were at their 2020 highs.