Sterling erases gains as unemployment risk rises with new job scheme

LONDON (Reuters) - Sterling lost some steam but remained above $1.27 in later trade on Thursday after British finance minister Rishi Sunak announced a new job support scheme but said unemployment would rise.

FILE PHOTO: Pound banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

Against the dollar, sterling was down 0.1% at $1.2718 by 1515 GMT after hitting a two-month low of $1.2676 on Wednesday, and having bounced back to $1.2780 in earlier trade.

Against the euro, sterling was flat at 91.56 pence.

In a choppy session, fears that unemployment will rise when the furlough scheme ends next month kept investors nervous, as Sunak announced more government support to rescue businesses and jobs but said the British government will support only viable jobs.

“The main question is who is going to determine what is the definition of a viable job,” said Naeem Aslam, chief market analyst at AvaTrade, adding that rising unemployment will take a toll on sterling.

The British currency was also under pressure after the Bank of England did not exclude the possibility of negative rates, which is seeing as a downside risk for sterling.

BoE Governor Andrew Bailey said on Thursday the bank is seeking anwers on the suitability of sub-zero rates.

Sterling has lost 4.9% against the dollar in September so far, and is on course for its worst month since October 2016, as talk of negative rates, the looming risk of a no-deal Brexit and new lockdown measures weigh down the currency.

Earlier this week, Prime Minister Boris Johnson told Britons to work from home where possible and ordered restaurants and bars to close early. The new measures could last for six months, he said.

Sterling gained some support from renewed hope the European Union and Britain can reach a Brexit trade agreement by the end of a transition period in December after two of the most powerful players in the negotiations said they were determined to strike a deal.

Graphic: Cable's worst month since October 2016

Reporting by Joice Alves; Editing by Angus MacSwan