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Sterling Falls More Against Strong Dollar, Hurt by Brexit

LONDON (Reuters) - The pound fell against the dollar on Thursday, extending its losses on a combination of dollar strength and weak domestic factors: the long-term damage to Britain’s economy from the coronavirus and a lack of progress in Brexit negotiations.

The Bank of England’s deputy governor, Dave Ramsden, said on Wednesday that the level of British economic output would permanently be about 1.5 percentage points lower than it would be had it not been for the pandemic.

The European Union’s chief Brexit negotiator, meanwhile, said that Britain had not changed its position on key sticking points in Brexit trade talks and that he was “worried and disappointed”.

“Over the past few days Sterling was able to benefit from a EUR and USD weakness. At the same time investors seem to be ignoring idiosyncratic factors,” wrote Commerzbank FX strategist Thu Lan Nguyen in a note to clients.

“Things are still not looking great as far as Brexit is concerned,” she said, referring specifically to comments by BoE governor Andrew Bailey about a lack of progress on the issue of equivalence for the financial services sector.

“Following 4 years of Brexit drama the market seems immune to this. However, GBP investors will be unable to ignore the Brexit risk forever,” Nguyen said.

At 0753 GMT, sterling was at $1.3295, down 0.4% since the previous session’s New York close.

Against the euro it was little changed, down around 0.1% at 0.8884.

After the euro hit $1.20 earlier this week, it has retreated as the market grew concerned that euro strength was a problem for the European Central Bank.

“EUR/GBP is pressing support at 0.8865, helped by the slightly softer EUR,” wrote ING strategists.

“Our preference is that this support level holds, before fresh rounds of Brexit brinkmanship from both sides weighs on GBP over coming weeks,” they wrote, adding that they prefer a move back above 0.9 as neither side look willing to compromise in negotiations yet.

Britain’s economy shrank by more than 20% in the April-June period, worse than any other big industrialised nation.

More than one-in-10 British shops stand empty.

UK Prime Minister Boris Johnson said that the furlough scheme which helped retain jobs during the pandemic was now keeping people in “suspended animation” and that people should go back to work.

On the possibility of a negative interest rate, speculation about which has previously hurt the pound, BoE Governor Andrew Bailey said that it is in the Bank’s box of tools but that he is not planning to use it soon.

Reporting by Elizabeth Howcroft; Editing by Hugh Lawson

Source: Reuters

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