LONDON (Reuters) - Sterling recovered on Friday from the five-month lows it reached earlier in the day against the dollar and euro, although worries about a no-deal Brexit capped the currency’s gains.
By 1430 GMT, sterling was up 0.4% at $1.2712, bringing its gains in June to more than 3%. After touching five-month lows, it returned to positive territory as the dollar index eased 0.15%
Against the euro, the pound gained 0.24% to 89.52 pence, recovering from a January low of 89.92. Sterling has now lost 4% of its value against the euro since the start of April, although some of its losses during the past week came as a result of broad euro strength.
Investors are reluctant to take big positions in the pound amid the Conservative party leadership contest, which should end with a new prime minister in place by the end of July.
Boris Johnson, the frontrunner, has said Britain will leave the European Union on Oct. 31 deal or no deal. But he has also said there is only one chance in a million of leaving without an agreement in place.
“It is going to be a bumpy ride. GBP looks a bit more cheap. But the fact that it is cheap and unloved means there is a risk we see a slightly stronger GBP. We could potentially see a stronger reaction if more market-friendly news are delivered,” said Joseph Little, global chief strategist at HSBC Global Asset Management.
Sterling was unmoved by data showing showed the British economy grew 0.5% in the first quarter, in line with expectations.
The pound is widely expected to remain under pressure until there is clarity around Brexit.
“As long as a no-deal Brexit remains a possibility, that should keep the pound below the psychological 1.30 mark against the U.S. dollar,” said Han Tan, market analyst at FXTM.
“Even though the UK leadership transition is set to be completed within the next month, sterling is expected to remain exposed to political risks leading up to the Oct. 31 Brexit deadline, as the UK continues to pursue its exit from the European Union.”
Reporting by Tommy Wilkes; editing by Larry King