Sterling headed for its first positive week in four against the dollar on Friday, holding below the $1.25 mark as a week of negotiations between Britain and the European Union ended prematurely, with meetings expected to resume next week.
The pound slipped briefly in morning trading in London, a move one analyst attributed to some spillover of political uncertainty in Europe following the resignation of French prime minister Eduoard Philippe and the appointment of his successor.
By 1509 GMT, the pound was trading flat to the dollar at $1.2464.
It also traded flat against the euro, at 90.16 pence.
Sterling has risen 1.2% against the dollar this month, after losing 2.7% in June.
“The more consolidative tone of the pound is likely related to the fact that it is the worst performing G10 currency on a 1 month view – investors are likely pausing and evaluating new news,” said Jane Foley, head of FX strategy at Rabobank.
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Brexit talks this week between Britain and the EU ended early on Thursday, with a meeting between the chief negotiators on Friday cancelled.
The EU’s chief negotiator, Michel Barnier, on Thursday said serious divergences remained between the two sides after talks this week on their future relationship.
British Prime Minister Boris Johnson said on Friday he was more optimistic than Barnier that a post-Brexit trading deal could be struck, but said Britain could leave the bloc without a comprehensive agreement if needed.
Implied volatility on the pound – as shown by options markets – remains elevated compared with other currencies.
“There are some positive headlines connected with the latest Brexit talks,” Foley said.
UK Chief negotiator David Frost has described the talks as “comprehensive and useful”, she noted, while adding the fact that significant difference remain would keep investors cautious.
The longer the wait for concrete news on Brexit the more likely the pound sterling is to push lower. The huge political uncertainty suggests that volatility is likely to remain higher than other G10 peers, Foley said.
Forecasts of a deeper UK recession relative to other European countries, the possibility of negative interests from the Bank of England and Brexit have all weighed on the pound in recent weeks.
A historic slump across British businesses levelled off last month as some of the economy reopened following an easing of the coronavirus lockdown, a business survey showed.
The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) rose to 47.1 from 29.0 in May.
Reporting by Ritvik Carvalho
Source: UK Reuters