Sterling strengthens due to weaker dollar, shrugging off GDP slump

Thursday,   13-Aug-2020   02:14 PM (IST)

Sterling rose against the dollar on Thursday, driven by dollar weakness as traders shrugged off Wednesday’s dismal GDP data but remained cautious about the longer-term economic outlook for Britain. Markets were bearish in early trading, with European stocks down and the dollar weaker as investors started to lose hope that the U.S. government would agree on a stimulus deal to support the economy and the millions of workers who have lost their jobs. Britain’s economy shrank by a record 20.4% in the second quarter - a substantially bigger slump than in the euro zone (12.1%) or United States (9.5%), data on Wednesday showed. But the pound did not decline significantly on the news, which was outweighed by dollar weakness by the end of the session, which pushed cable up. Sterling was at $1.3077 at 0744 GMT, up 0.4% since New York’s close versus a weaker dollar. So far in August, it has been broadly in line with its pre-pandemic levels. Versus the euro it was little changed, at 90.46 pence per euro. The next flashpoint for global market sentiment is likely to be Saturday, when top U.S. and Chinese officials will meet to review the progress of their phase one trade deal. Even though dollar weakness boosts cable, investors are generally bearish on the pound. There is expected to be a lag in Britain’s labour market recovery later in the year, after the government’s furlough scheme ends in October. Analysts said that uncertainty over the trajectory of the coronavirus was also limiting the pound. Britain changed its methodology for counting COVID-19 deaths on Wednesday, but the new death toll was still the highest in Europe. Brexit is also weighing on the outlook for sterling, with Britain due to leave the single market and customs union on Dec. 31 whether or not a deal has been reached. Britain said on Thursday it would step up demands for the United States to drop tariffs on goods such as single malt Scotch whisky, after industry warnings.