LONDON, May 27 (Reuters) - Sterling recovered from an overnight drop against the dollar that took it to a 10-day low on Thursday, as the greenback’s spike higher fizzled out by the start of European trading.
Comments from a top Federal Reserve official on Wednesday that he was ready to open talks on tapering the U.S. central bank’s emergency support for the economy, as well as traders gearing up for inflation data due on Friday, helped give the dollar a short-lived boost, pushing the pound to its lowest since May 17 in Asian trading hours.
By 0752 GMT in London however, sterling had steadied, trading flat against the buck at $1.4118.
Against the euro it traded 0.1% lower at 86.42 pence.
Recent movements in sterling have been dictated largely by the direction of the U.S. dollar, rather than any strong fundamental catalysts, analysts say.
The pound was also unaffected by comments from Scotland’s First Minister Nicola Sturgeon on Wednesday that she was in talks with the Scottish Green Party to form a coalition that would cement a pro-independence majority in the devolved parliament in Edinburgh ahead of a political fight for the future of the United Kingdom.
Sturgeon, the leader of the Scottish National Party (SNP), said she had held discussions at her official residence on Tuesday with the Greens, who have promised to support a second independence referendum.
“Sterling has been largely unaffected by the news that Scotland plans to hold an independence referendum once the pandemic is over,” strategists at ING said in a note to clients.
“As we argued previously, a referendum during this UK Parliamentary term is unlikely and as observed ahead of the Scottish or the Brexit referendums, the risk premium only starts to be built into the currency six months ahead of the event at the earliest (with this time frame being even shorter in the case of the first Scottish independence referendum). This means little imminent risk to GBP.”
Sterling is the second best-performing G10 currency versus the dollar this year, up 3.4% year-to-date and trailing only the commodity-linked Canadian dollar. That performance is a result of investors betting on a quicker reopening for Britain’s economy on the back of its rapid COVID-19 vaccination pace.
Britain commenced the third stage of its reopening last week, allowing indoor dining in pubs and restaurants. Economic indicators such as retail sales are looking up, as are surveys of purchasing managers across industries and employment measures.
Reporting by Ritvik Carvalho Editing by Gareth Jones