Sterling fell on Tuesday as Britain remained stuck in COVID-19 isolation due to a new coronavirus strain, although it recovered from a 10-day low as hopes of progress in Brexit talks helped to take some pressure off.
With days to the end of a Brexit transition period on Dec. 31, the pound had fallen below $1.32 on Monday as much of the world closed borders to the United Kingdom after London identified a highly infectious coronavirus strain.
On Tuesday, the British currency was 0.6% lower against the dollar at $1.3385 by 1010 GMT, recovering from a 2.5% fall of $1.3190 touched on Monday.
Against the euro, sterling was down 0.4% at 91.20 pence, after it fell to as much as 92.16 on Monday.
Jane Foley, head of FX strategy at Rabobank, said sterling found some support from reports that the UK and the European Union “could be closing in on a compromise regarding fisheries” - one the sticking points in the negotiations.
But the currency is expected to continue to be volatile even if the parties find an agreement on a Brexit deal amid new lockdowns and border closures, she added.
“While a Brexit deal would be a huge move forward, any relief rally in the pound is likely to be tempered by the reality that many sectors will remain outside the reach of any deal and by the concerns over the impact on the economy of the current tier 4 restrictions and border closures,” Foley said.
Meantime, official data showing that Britain’s economic recovery from its coronavirus crash was quicker than expected in the third quarter also helped to support the currency.
UK Home Secretary Priti Patel told Sky the government is working with France in an attempt to find a way to lift border closures that have snarled one of Europe’s most important trade routes.
Editing by William Maclean