June 12, 2020 / 9:17 AM / a month ago

Sterling recovers against dollar as investors return to risk

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

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

By Joice Alves

LONDON, June 12 (Reuters) - The pound was stronger against a weaker dollar and flat against the euro on Friday as a combination of stronger appetite for risk assets, record low economic data and Brexit risks continued to weigh on the British currency.

The pound had a disappointing week, slipping back after it had risen 3.9% against the dollar in 10 consecutive days of gains starting on May 28 - its longest winning streak since January 2018.

But sterling recovered on Friday up 0.2% against the dollar at $1.2631 as investors returned to risk assets. Analysts suggested the pound is behaving like a “risk currency”, in that it strengthens when improving market sentiment weakens demand for the safe-haven dollar..

Against the euro, sterling flattened at 89.66 pence .

Official data released on Friday showed that Britain’s economy shrank by a record 20.4% in April from March as the country spent the month in a tight coronavirus lockdown.

Asset manager Candriam told clients that their view on Britain was negative given its performance in managing the COVID-19 crisis and a lack of progress in trade deal negotiations with the European Union.

Britain left the EU on Jan. 31 and has made very little headway in talks about a future trade relationship, negotiators have said. On the plus side, both parts have agreed to intensify the pace of free trade negotiations in July.

“This all alongside a massive fiscal deficit, inflated debt to GDP and a current account deficit which requires financing. As a result we maintain a short on GBP as we expect further depreciation,” Candriam said.

Finance minister Rishi Sunak said on Friday that the lifelines the government has provided, including supporting salaries, grants and tax cuts, will help the country to recover as the economy reopens.

Next week much of Britain’s retail sector is due to reopen as long as shops follow social distancing rules.

With the government under pressure from businesses not to compound the chaos already caused by the coronavirus outbreak, it has abandoned its plan to introduce full border checks with the EU on Jan. 1, the Financial Times newspaper reported. (Reporting by Olga Cotaga Editing by Mark Heinrich)

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