July 13, 2020 / 8:51 AM / 22 days ago

Sterling eyes 200-day moving average at $1.27 as risk sentiment improves

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

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

By Olga Cotaga

July 13 - Sterling/dollar rose on Monday towards its 200-day moving average of $1.27, though it was last trading neutral at $1.2619. Against the euro, the pound was 0.2% weaker at 89.67 pence, but it was still moving towards its 55-day moving average at 89.30.

Boosted by improved risk sentiment and hefty fiscal stimulus recently announced by finance minister Rishi Sunak, the British pound is attracting investor attention this month, having risen nearly 2% so far this month.

Second only to the Norwegian crown, sterling has been the best-performing currency so far in July as traders moved into more risky assets such as equities, buoyed by hopes of an economic recovery post-COVID-19.

On Monday, European shares were in positive territory as markets looked to earnings season, expecting most U.S. companies to beat forecasts as the bar has been set low.

“The pound remains strongly positively correlated with the performance of global equities,” said Lee Hardman, currency analyst at MUFG.

“According to our calculation, the 30-day rolling correlation between daily percentage changes in GBP/USD and MSCI ACWI index remains elevated at +0.56,” Hardman said.

Britain’s imminent exit from the European Union, however, still weighed on investors’ minds.

Britain is urging businesses and individuals to prepare for the Dec. 31 end of the Brexit transition period with an information campaign titled: “The UK’s new start: let’s get going.”

But a survey from lobby group the Institute of Directors said only a quarter of companies were fully ready for the end of the transition period.

Britain left the EU on Jan. 31, three and a half years after a referendum, but a transition period has delayed any major change in the relationship.

Reporting by Olga Cotaga, editing by Larry King

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