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Sterling slips versus dollar; investors watch political developments
Major currency pairs were little changed ahead of the US Federal Reserve meeting on Wednesday - where no policy change is expected.
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Pound Sterling notes and change are seen inside a cash register in a coffee shop in Manchester, Britain, on Sept. 21, 2018. (Reuters/Phil Noble)
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terling slipped against the dollar in early London trading on Tuesday, but remained within the previous session's ranges and stabilised against the euro, still struggling to regain the momentum it had in the first quarter of 2021.
Major currency pairs were little changed ahead of the US Federal Reserve meeting on Wednesday - where no policy change is expected.
Prime Minister Boris Johnson is facing a stream of allegations in newspapers - all of them denied - about everything from his muddled initial handling of the COVID-19 crisis to questions over who financed the redecoration of his official apartment.
The political scandals were responsible for a decline in sterling last week, said Petr Krpata, chief EMEA FX and IR strategist at ING.
"Based on our financial fair value model, EUR/GBP currently trades 1.3 percent overvalued, suggesting some near-term support for sterling unless we see further allegations about the Conservative government," he wrote in a note to clients.
"So far, it has been a rather challenging month for GBP, with the currency suffering first from concerns about the pace of the vaccination programme and now by a degree of political uncertainty."
At 0750 GMT, the pound was down 0.2 percent against the dollar at $1.3881. Versus the euro, it was down less than 0.1 percent at 86.975 pence per euro.
The pound had its strongest quarter against the euro since 2015 last quarter, helped by relief that a no-deal Brexit was avoided, a lessening of expectations for negative rates, and the UK's speedy rollout of COVID-19 vaccines.
But it has struggled to gain momentum so far this month, as the so-called "vaccine trade" runs out of steam. Investors are now looking for indications of how economic activity picks up after some lockdown restrictions were lifted on April 12.
British grocery sales rose 6.5 percent in the four weeks to April 18, with the rollout of COVID-19 vaccinations and partial relaxation of social restrictions encouraging older shoppers to return to physical stores.
Net speculative long positions on sterling slipped marginally in the week up to April 20, CFTC data on Friday showed. The market remains long on the pound.
"Anecdotal evidence regarding levels of consumer activity after the April 12 partial relaxations of restrictions in England are strong," wrote Rabobank strategists Christian Lawrence and Jane Foley in a note to clients.
"However, there is still a fair degree of positive news in the price."
Goldman Sachs said on Sunday that Britain looks set to see faster economic growth than the United States this year.
