July 10, 2020 / 8:25 AM / a month ago

Investors keep away from sterling in uncertain times

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

By Olga Cotaga

July 10 - Sterling traded slightly lower versus the U.S. dollar and was unmoved against the euro on Friday, with investors mostly staying on the sidelines.

So far little has been achieved in negotations between Britain and the European Union on a trade deal following Britain’s departure from the bloc.

This leaves sterling traders unsure how to approach the pound.

Stephen Gallo, currency analyst at BMO Capital Markets, thinks the pound will weaken given that other countries have an advantage over Britain for being exporting countries.

“The UK’s trade policies will be in flux beyond 2020. What 2020 will do is create a starting point for UK/EU-27 trade adjustments going forward,” Gallo said, adding that “regulatory alignment, dispute arbitration and trade friction are likely to crop up as issues over the medium-term”.

“We would be inclined to fade sterling strength versus the euro on a move back to 0.8650,” he said.

The pound was last flat at 89.61 pence versus the euro and down 0.1% against the dollar at $1.2590.

The trade-weighted pound has never recovered to its pre-Brexit referendum levels.

Britain is also facing challenges to reviving its economy, badly hit by the coronavirus.

Though British shoppers returned to the high street in June as a lockdown eased, overall numbers were much lower than normal for the time of year, an industry survey showed on Friday.

Stress in financial markets could yet make a comeback, Britain’s finance industry said last month.

Reporting by Olga Cotaga; Editing by Angus MacSwan

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