LONDON (Reuters) - Sterling edged lower against the dollar on Friday as tensions between China and the United States boosted demand for the greenback, but it recovered against the euro.
Tensions between the world’s two largest economies encouraged investors to bet on safe heaven assets and sterling weakened against a broadly stronger U.S. currency for a third consecutive day.
The pound was also under pressure after data on Friday showed that UK retail sales fell by a record 18% in April as the coronavirus lockdown hit consumer spending.
In addition, Britain’s government borrowed more in April than it has in any month on record, pushing public debt close to 100% of gross domestic product, the highest since 1963, data showed.
The data added pressure on the pound, which has suffered since the latest round of Brexit negotiations ended with scant progress last week and on market speculation that the Bank of England could cut interest rates to negative to spur the economy.
“With the prospects of negative rates fully on the market’s radar and in part priced in by the end of this year and for 2021, the next main hurdle for GBP should be the negative news-flow on the trade negotiations and likely no extension of the UK-EU transition period,” strategists at ING wrote in a note to clients.
The pound was last down 0.4% versus the dollar at $1.2174 and up 0.16% against the euro at 89.48 pence, recovering after three consecutive days of losses against the euro zone currency.
Dollar strength caused the euro to retreat from the key $1.10 level hit on Thursday, in the absence of further news about the EU recovery fund which boosted the euro when it was announced earlier in the week.
A drop in UK inflation fuelled speculation this week that the Bank of England might cut interest rates below zero. British five-year government bond yields fell below zero for the first time on Thursday, a day after Britain sold its first bond with a negative yield.
The pound is in the lower band of its recent trading range, as Britain remains one of the countries hit hardest by the pandemic. The UK’s death toll from COVID-19, the disease caused by the new coronavirus, has topped 43,000, the worst in Europe.
Britain’s finance ministry said more than 1.8 million mortgage payment holidays had been taken up since March. The scheme had been due to end in June but was extended for another three months.
Editing by Larry King and Susan Fenton