Sterling edged lower against the dollar on Monday, with British Prime Minister Boris Johnson expected to announce new restrictions as the COVID-19 outbreak accelerates, but hopes for a Brexit deal kept the currency above the key $1.30 level.
Johnson was due to hold a meeting of the government’s emergency COBRA committee and then address parliament. His three-tiered local lockdowns will include shutting bars, gyms, casinos and bookmakers in some areas placed onto the “very high” alert level, probably across the north of England, British media reported.
New lockdowns will add pressure to the UK economy, which grew at the slowest pace in August since it began to recover in May from its record slump, but analysts said markets have turned more optimistic about Brexit negotiations.
Sterling was down 0.2% at $1.3021 at 1023 GMT, not far from the one-month high it touched on Friday. Versus the euro, it was flat at 90.69 pence.
The “biggest surprise” is sterling starting the week in a “positive tone”, holding above $1.30, despite COVID-19 headlines and the lack of “constructive news flow” on a Brexit deal, said Ulrich Leuchtmann, FX strategist at Commerzbank.
Johnson had set a deadline of the Oct. 15 EU summit for agreeing a trade deal. An EU diplomat said on Friday that EU chief Brexit negotiator Michel Barnier wanted a few more concessions from Britain before entering the last intense phase of negotiations.
The Financial Times reported that EU leaders would insist on tough enforcement rules for any trade deal with Britain.
Leuchtmann said there were still political risks that the market hasn’t priced in appropriately.
“Understandably, all market participants believe this is all a kind of political game-play,” he said. “I would be more calm if the market was a little bit more nervous.”
In the meantime, the Bank of England asked banks on Monday how ready they are for zero or negative interest rates, following up its announcement last month that it was considering how to take rates below zero if necessary.
Britain recorded 12,872 new cases of COVID-19 on Sunday and has officially registered 42,825 deaths.
Reporting by Joice Alves; Editing by Mark Heinrich and Susan Fenton