Sterling gains as risk sentiment recovers

Sterling gained on Tuesday as demand eased for U.S. dollars, allowing the pound to recover some of its 1.5% loss this month.

The pound ended April up 1.4% against the dollar on the month, benefiting from seasonal factors such as the start of the UK tax year as well as corporate dividend repatriation flows.
Risk appetite improved as governments eased lockdowns and U.S. officials said the United States was not looking to take punitive measures against China over the coronavirus, contradicting President Donald Trump’s threat to impose tariffs on China.
By 0742 GMT, sterling was up 0.4% against the dollar at $1.2455. Against the euro, it was 0.3% higher at 87.40 pence.
For an interactive version of the graphic below, click here tmsnrt.rs/2y8LyB7.
“Sterling has steadied after a sharp adjustment lower at the start of the month,” said Viraj Patel, FX and global macro strategist at Arkera. “The risks are still to the downside as global markets could find limited positive catalysts in May with much of the global monetary and lockdown easing sentiment priced in.”

Patel added that the risk of a second wave of coronavirus cases or a sharper UK economic slowdown in the coming months could keep sterling capped.
“Any further adjustment lower would be driven by U.S. dollar haven flows in a broader risk-off market.”
Incoming economic data in the UK continued to paint a dire picture. British new-car sales slumped by around 97% in April to their lowest since February 1946 with factories and dealerships, according to preliminary data from the Society of Motor Manufacturers and Traders.
A survey by the Confederation of British Industry showed small British manufacturers expect the biggest decline in output in more than 30 years over the next three months, echoing other gloomy forecasts for the sector.
There was a glimmer of positive news: the United States and Britain open will trade negotiations by videoconference on Tuesday.
Investors will be looking to the Bank of England meeting on Thursday, which could provide fresh catalysts for movement in the pound.

“We don’t expect the Bank of England to add fresh stimulus this week, although the pressure to beef up its QE programme will build over the next few months, not least because the economic recovery will be very gradual,” ING strategists said in a note.
“We think policymakers will push back on the idea of a ‘V-shaped’ recovery when it unveils new forecasts on Thursday.”

Source: Reuters

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