Sterling edged lower against the dollar on Tuesday, trading within a cent’s range above the $1.30 mark as investors singled out news out of Brexit negotiations as the sole driver of the currency’s future short-term direction.
Recent reports have shown that the European Union wants more concessions from Britain before entering a last, intense phase of negotiations.
The two chief negotiators, the EU’s Michel Barnier and Britain’s David Frost, say they are inching towards a deal, though they have underscored that important gaps remain on fishing, level playing field issues and governance.
British Prime Minister Boris Johnson had set a deadline of the Oct. 15 EU summit for agreeing a trade deal and Frost is in Brussels for intensified talks.
With no fresh news coming out of the negotiations, sterling was trading in tight ranges. By 0804 GMT, the pound was 0.3% lower to the dollar at $1.3025.
The pound has been only minimally affected this week by labour market data, the Bank of England further weighing the possibility of negative interest rates, and renewed social restrictions in the UK to combat a fresh wave of COVID-19 infections, despite the implications of these factors for Britain’s economy.
On Tuesday, Housing Secretary Robert Jenrick said the British government may have to impose stricter restrictions than it currently has if the second wave of the novel coronavirus accelerates in high risk areas.
PM Johnson introduced a new tiered system of restrictions for England on Monday, with Liverpool and the surrounding Merseyside area placed in the highest level, with pubs shut, to curb an acceleration in COVID-19 cases.
“The UK government announced stricter containment measures in some areas of the country and top health officials are already suggesting more will likely be needed,” said ING strategists in a note to clients.
“This is not good news for the battered UK economy but with Brexit negotiations at a critical phase, hardly anything else looks likely to impact the pound (the lack of reaction to labour data and comments about negative interest rates being a case in point).”
The Bank of England asked banks on Monday how ready they are for zero or negative interest rates, while BoE policymaker Jonathan Haskel said the central bank had an “absolutely open mind” about the possibility of sub-zero rates as part of its support for Britain’s economy during the coronavirus crisis.
Britain’s unemployment rate rose by more than expected to 4.5% in the three months to August, its highest in more than three years, even before the end of the government’s broad coronavirus job protection plan.
Economists polled by Reuters had expected the jobless rate to rise more slowly, to 4.3% from 4.1% in the three months to July.
Sterling also traded tightly against the euro, down 0.1% at 90.43 pence per euro.
“As we still see no major breakthrough in the Brexit negotiations this week, we think euro-sterling will continue to be trapped in the 0.90-0.92 range,” said Kristoffer Kjær Lomholt, Chief Analyst at Danske Bank.
Reporting by Ritvik Carvalho, Editing by William Maclean