LONDON (Reuters) – The pound hit its highest in over a month against the dollar on Thursday, extending gains driven by a fall in coronavirus cases in Britain and as a dovish U.S. Federal Reserve weighed on the greenback.
The British currency has gained for five consecutive sessions, and on Thursday was 1.4% higher against the dollar on the week. By 0754 GMT, sterling was 0.3% higher on the day at $1.3843, having hit its highest since June 24 against the dollar.
The dollar also fell after Fed Chair Jerome Powell’s remark that rate increases were “a ways away”.
Against a broadly stronger euro, the pound gained 0.1% to 85.10 pence per euro.
Although COVID-19 infection numbers in Britain rose again on Wednesday for the first time in a week compared with the previous day, they were still lower week on week and there was little reaction from the pound.
“Sterling continues to reap the benefits of the slowdown in Covid-19 cases, in turn reversing the prior market concerns about another meaningful wave,” ING said in a note to clients.
“This means a further adjustment in the GBP speculative positioning lower is unlikely. Rather, there is a room to re-build sterling longs after their meaningful decline over the past few months.”
Speculators went net short on the pound for the first time since December 2020 in the week up to last Tuesday, CFTC data showed on Friday.
Sterling’s performance has tracked global risk sentiment in recent weeks, with the currency’s performance in line with the direction of global stock markets. On Tuesday, however, the pound surged higher in a seemingly arbitrary move around the daily currency market fix, leaving traders stumped.
Traders will look to the Bank of England next week, which appears set to keep its stimulus running at full speed despite two policymakers breaking ranks to suggest that its nearly 900 billion pound ($1.2 trillion) QE programme might have to end early as inflation speeds up.
A think-tank said Britain’s government should take on hundreds of billions of pounds of hard-to-sell bonds held by the Bank of England to reduce the risk of the BoE’s independence being questioned when the time comes to raise interest rates.
Source: Read Full Article