April 28, 2020 / 9:13 AM / a month ago

Sterling strengthens as investor risk appetite improves

LONDON (Reuters) - The pound inched higher against the U.S. dollar on Tuesday as investors turned their attention to Federal Reserve and European Central Bank meetings this week when officials could announce further stimulus to ease the impact on their economies of the coronavirus crisis.

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

Sterling has been closely correlated with riskier assets, such as stocks, and when investor risk appetite increases, the pound tends to move up.

The UK currency was 0.1% higher at $1.2440, having risen earlier to $1.2516, its highest since April 17.

(Graphic: Pound rises to 1.5-week high - here)

The pound also rose in early trade against the euro but was then kept in check after the Confederation of British Industry said British retailers suffered their biggest fall in sales since the 2008 financial crisis in the first half of April.

The British currency was flat versus the euro at 87.11 pence after rising to an eight-day high of 86.91 pence earlier.

The Bank of Japan said on Monday it was expanding its stimulus to help companies hit by the coronavirus crisis, pledging to buy an unlimited amount of bonds. Traders expect the Fed and the ECB to follow suit, on Wednesday and Thursday respectively.

“I would assume that the pound is tracking risk assets higher,” said Stephen Gallo, European head of FX strategy at BMO Financial Group.

“On the whole this week, given all the central bank meetings that are coming, anyone who had risk-off trades on, they probably would be trimming some of that exposure. You don’t fight the central banks,” Gallo said.

Data on Monday showed 21,092 people have now died in UK hospitals from the coronavirus.

It also showed the lowest daily death toll for four weeks. However, officials, including Prime Minister Boris Johnson, warn against lifting lockdown measures too early.

Kit Juckes, macro strategist at Societe Generale, said “sterling’s at best stuck in a tight range, at worst vulnerable to a fresh bout of nerves in due course.”

Reporting by Olga Cotaga; editing by Angus MacSwan/Barbara Lewis/Susan Fenton

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