July 30, 2020 / 10:46 AM / 10 days ago

UPDATE 2-Sterling rises above $1.30; rallies versus dollar for 10th day straight

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

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Updates prices, adds commentary)

By Elizabeth Howcroft

LONDON, July 30 (Reuters) - Sterling rose against both the dollar and the euro on Thursday, topped the key $1.30 mark, but Brexit-related risks and the economic fallout from the coronavirus pandemic kept investors cautious on the currency’s longer-term outlook.

The dollar fell after data showed the United States’ economy contracted by 32.9% in the second quarter and U.S. President Donald Trump suggested delaying the November presidential election.

The dollar’s weakness pushed up the pound, which hit new four-month highs and was set for its tenth consecutive day of gains.

“I wouldn’t say it’s typical risk-on/risk-off at the moment,” said Thu Lan Nguyen, senior FX strategist at Commerzbank.

“Overall the pound remains the underperformer in the G10 space so I would expect at some point that we see a little bit of a correction from time to time, but generally it has been quite weak,” she added.

Versus the dollar, the pound was at $1.3066 at 1451 GMT, up 0.6% on the day.

It was up around 0.6% versus a weaker euro, at 90.18 pence .

The pound is up 5.3% percent against dollar this month but only 0.5% against the euro.

“If markets had some comfort the UK is heading for a managed exit (from the EU) we would see that cross move,” said Dean Turner, an economist at UBS Global Wealth Management, referring to euro versus sterling.

“The fact we haven’t seen much move in that cross suggests a risk premium around Brexit negotiations,” he said.

Investors are generally bearish on the pound as the UK and European Union have made little progress on post-Brexit trade arrangements. Britain left the EU in January and its transition period ends on December 31.

“Any meaningful progress on the outstanding issues of fisheries and state aid will likely only come in September at the earliest, and probably only after an increase in noise and a further hardening in rhetoric,” wrote Deutsche Bank strategist Shreyas Gopal and economist Sanjay Raja in a note to clients.

“From a market perspective, this pick up in noise has the potential to unsettle the currency over the next few weeks,” they added.

The outlook for the UK is also hampered by Britain’s high COVID-19 death toll.

British Health Secretary Matt Hancock said the number of coronavirus cases in the country is no longer falling, and is at best flat.

Prime Minister Boris Johnson said that COVID-19 was under some measure of control in Britain but that a resurgence in some European countries showed the pandemic was not over.

Reporting by Elizabeth Howcroft, editing by Larry King, Kirsten Donovan

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