Pound v dollar: Sterling rises as investors brush off Brexit to take bold bets

The pound has risen sharply against the dollar as investors’ appetite for risk improved despite coronavirus and no-deal Brexit fears looming large.

Sterling rose more than half a cent against the dollar – up 0.52c at $1.3121 today. Stocks that have been pummelled by the Covid crisis were in favour with British Airways owner IAG up 4%, Intercontinental Hotels Group rising 2.5% and aviation industry supplier Rolls-Royce up 2%.

Traders were reacting to a clutch of updates in long-running international issues including signs of progress in tense US-China trade talks; the start of a Covid-19 treatment trial by AstraZeneca; Moderna said it’s near a deal to supply at least 80 million vaccine doses to the European Union and sentiment around Britain’s post-Brexit deal talks with the EU.

Signs negotiations with Brussels had stalled last week hit the pound. The outlook for sterling is also clouded by an expected spike in unemployment when the furlough scheme ends in October.

“The pound strength correlates well with the improvement in risk sentiment overnight. This, in turn, seemed to reflect some positive news regarding the US-China trade deal as well as hopes for a Covid-19 vaccine,” said Valentin Marinov, head of FX strategy at Credit Agricole.

Steven Barrow, Standard Bank’s head of foreign-exchange strategy, said: “Our outlook for the U.K. and the pound does not involve a major second wave of coronavirus and failure of UK/EU negotiations as the central scenario. In fact, we’re more tempted to see the upside.”

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: “The medium-term sterling outlook remains negative on lingering pandemic and Brexit risks to the British economy, hence we continue seeing price advances as interesting top-selling opportunities for traders looking for an eventual setback below the 1.30 mark, which should happen as soon as the pound takes over the reins of its destiny.”