LONDON (Reuters) - Sterling traded slightly higher on Wednesday, as some traders bought back into a currency that had slipped to a two-week low the day before amid a flight to safe havens in financial markets following a crash in oil prices.
The pound is still well above its mid-March lows, but analysts said the currency remains cheap, though its correlation to equities and other riskier assets make it a hazardous bet.
The British currency was last up 0.3% both against the dollar and the euro, trading at $1.2333 and at 88 pence respectively.
“I think it’s more of a little bit of a relief rally,” said Jeremy Stretch, head of G10 FX strategy at CIBS Capital Markets. A move higher in equity futures this morning was “also seen as a little bit of a catalyst for a small sterling bounce”, he said.
On top of that, “we haven’t seen capitulation in consumer prices we might have feared”.
The pound got a little bit of a kick on Wednesday from reports that Britain’s inflation rate dropped in March, when oil prices tumbled and the coronavirus crisis escalated, but was in line with expectations.
The pound had fallen the day before to $1.2248, a 13-day low. A month before that, it went to as low at $1.1413, its weakest in decades.
A British military plane carrying medical protective equipment from Turkey landed in the Britain early on Wednesday.
The government has been criticized for not being well equipped in fighting the novel coronavirus, advising medical staff to reuse personal protective equipment (PPE).
Comments by the top official at the foreign ministry, who said on Tuesday that Britain made a political decision not to participate in a European scheme to buy ventilators and other equipment, also caused controversy.
Asked about McDonald’s comment, health minister Matt Hancock denied there had been a political decision.
A total of 17,337 people who tested positive for coronavirus have died in hospitals in Britain, an increase of 828 on the figure published 24 hours earlier, health ministry data showed on Tuesday.
“I think sterling will drift back lower as the data proves troublesome through the rest of the week, and also markets continue to focus on the return of politics and political risk into the UK,” Stretch added.
Reporting by Olga Cotaga; Editing by Alex Richardson