Sterling Edges Up, still Stuck below $1.38

So far this week, the pound has been propelled by moves in other currencies, in the absence of Britain-specific data releases or Bank of England speakers.

The dollar was close to its weakest in nearly one month, after U.S. ADP payroll numbers were lower than expected.

U.S. non-farm payrolls data is due on Friday. The job numbers are being closely watched because the U.S. Federal Reserve has said that the recovery in employment will determine the timing of tapering asset purchases.

At 1201 GMT, the pound was up 0.2% against the dollar, at $1.3792. On Tuesday, it briefly crossed the $1.38 level, but on Wednesday it did not go higher than $1.37995.

Versus the euro, the pound was up around 0.1% at 85.91 pence per euro.

Jeremy Stretch, head of G10 FX strategy at CIBC, said that risk appetite was supporting the pound.

“If we get weak non-farms (payrolls) then that cable narrative could extend a little further but because we’re assuming still a strong, or at least an above-expectations non-farm reading, then we wouldn’t want to chase sterling higher versus the dollar,” he said.

Earlier this year, the speed of Britain’s COVID-19 vaccination programme and a broader reflation trade in global markets made the pound the best performer among its G10 currency peers, but it has since lost that lead.

The euro has strengthened against the pound by around 1.4% since early August - but CIBC’s Stretch said he expected the pound to return to gaining against the euro, heading back towards the 0.85 level.

“Ultimately the dovish credentials of the ECB (European Central Bank) will ... play into the narrative of the Bank of England going in to a different trajectory into next year compared to the ECB,” he said.

“I think that rate differential, driven and supported by the macro fundamentals still remaining relatively supportive in the UK, encourages euro-sterling to trade lower.”

Investors are also watching Britain’s COVID-19 infection data. In the last week of August, Britain reported the highest number of new infections in just over a month.