Sterling falls as England heads to second national lockdown

LONDON (Reuters) - Sterling fell against the dollar to its lowest in almost four weeks on Monday after England announced a new national lockdown, but analysts said hopes for a Brexit deal prevented the currency from declining further.

FILE PHOTO: Pound Sterling notes and change are seen inside a cash resgister in a coffee shop in Manchester, Britain, Septem,ber 21, 2018. REUTERS/Phil Noble

Prime Minister Boris Johnson announced over the weekend that a one-month lockdown across England would start on Thursday. Britain has registered more than 20,000 new coronavirus cases a day and scientists warn the worst-case projection of 80,000 dead might be exceeded this winter.

Senior cabinet minister Michael Gove said the one-month lockdown could be extended, while finance minister Rishi Sunak said he hoped it would be lifted in December.

Sterling was 0.4% lower at $1.2905 by 1602 GMT, after earlier touching its lowest since Oct. 07 at $1.2854. Versus the euro, the pound was down 0.3% at 90.13 pence.

Analysts said the impact on sterling of the announcement of a second lockdown would have been worse if investors were not positioning for a Brexit deal.

“I would say there is perhaps less anxiety about the lockdown ... because it’s been offset to some point by the expectation that in a couple of weeks’ time, there may be a Brexit deal,” said Jane Foley, head of FX strategy at Rabobank.

Britain is working with the European Union to close “significant gaps” in trade talks, Johnson’s spokesman said, as both sides seek to avoid a damaging breakdown in trade when a transition period ends on Dec. 31.

Foley added, however, that it was unlikely that sterling would “see any significant rebound” if the two sides reached an agreement.

“I don’t think a Brexit deal is going to be some sort of panacea for the UK problems”.

Sterling will reflect damage to the British economy from the new lockdown and rising political tensions going into 2021 as Johnson’s popularity declines, Foley said.

Analysts expect the British economy to contract significantly because of the second lockdown, but by less than the record hit of nearly 20% in the spring.

A survey showed on Monday that British factories lost momentum in October, especially among consumer goods makers, which tend to be more sensitive to short-term changes in the economy.

Looking at seasonal trends, the prospect for the pound is dire. Cable has fallen in 13 of the past 20 Novembers. Graphic: Sterling falls as England heads to second national lockdown -

Editing by Kirsten Donovan and Barbara Lewis