LONDON (Reuters) - Sterling rose against the dollar on Monday as plans to ease coronavirus lockdowns in Britain and signs the economy may bounce back due to pent-up demand kept the currency just below the $1.27 touched late last week.
Analysts warned, however, that Brexit remains a risk for the pound - which has rallied for seven consecutive days against the dollar - as talks on a future trade deal with the European Union after the UK’s exit fail to make progress.
The pound has risen 2.8% against the dollar this month as several economies reopen from lockdowns, weakening demand for the U.S. currency.
British Prime Minister Boris Johnson is planning to relax rules on outdoor dining and weddings, as well as speeding up government investment plans to limit the economic damage from the coronavirus, newspapers reported on Saturday.
The Sunday Times said Johnson wanted to loosen planning restrictions that prevent many pubs, cafes and restaurants using outside areas, and also to make it legal to hold weddings outside.
The number of British shoppers in early June indicate pent-up demand for shopping in physical stores as the coronavirus lockdown is eased, industry data showed on Monday.
Britain went into lockdown on March 23 to slow the spread of the pandemic, with all retail stores deemed non-essential forced to close.
By 1603 GMT on Monday, sterling was up 0.2% against the dollar at $1.2695, just below Friday’s $1.27.
“Sterling-dollar remains anchored around the 200-day moving average of $1.2660/65. But it seems that bar the broader weak dollar and positive risk environment, investors currently lack any major catalyst for the pound to move materially above this key level,” said Viraj Patel, FX and global macro strategist at Arkera.
“We could see the pound tread water around these levels in absence of any further positive catalysts and investors take stock of what will happen next in broader markets - especially ahead of the Fed meeting later this week. However, with Brexit headwinds also coming to the forefront of investors - the risks are mildly tilted to the downside for the pound this week.”
Against the euro, the pound gained 0.1% to trade at 88.99 pence.
Johnson is willing to accept EU tariffs on some UK goods in an attempt to win a trade deal and break the deadlock in talks with the EU, the Daily Mail reported. Britain’s chief negotiator, David Frost, had made a new offer, the newspaper said, citing sources.
According to the offer, the UK would accept tariffs on a small number of goods in return for the EU’s dropping its demand that Britain continue to follow EU rules.
“I think that it is useful to look at sterling versus the euro since it takes out the story of USD weakness,” said Jane Foley, head of FX strategy at Rabobank in London.
“Ignoring the volatility in the latter part of March, we see a pound that is much weaker than at the start of the year. There is a little EUR strength in the cross in the last few weeks, but Brexit-related uncertainty has been weighing on the pound.”
Speculators increased their net short position on sterling in the week to last Tuesday, CFTC data showed on Friday.
Graphic: Sterling short positions - here
Reporting by Ritvik Carvalho; editing by Larry King and Mark Heinrich