Sterling edges up from 11-day low as US dollar rally pauses

[LONDON] The British pound rebounded modestly from an 11-day low against the dollar on Monday as the greenback steadied across the board after its biggest one-day gains this year.

Sterling recorded its heaviest daily falls against the dollar in more than six weeks on Friday, after a stronger-than-expected US labour market report brought forward expectations for more interest rate hikes from the Federal Reserve, sending the dollar soaring.

With the Bank of England having voted 6-2 in favour of keeping British interest rates at their record lows last week, and flagging investment risks from Brexit, investors sold the currency after the jobs data.

But having lost almost 2 per cent in the two days at the end of last week, reaching a low of US$1.3024 on Friday, sterling was up 0.1 per cent at US$1.3046 on Monday.

EU Budget Commissioner Guenther Oettinger told a newspaper over the weekend that Britain will have to keep making payments for long-term programmes to the European Union after it leaves the bloc in 2019 - until at least 2020, he said.

Nomura currency strategist Jordan Rochester said sterling had become less sensitive to Brexit developments. "The pound has developed some sort of thick skin - or it's got its fingers in its ears - when it comes to Brexit noises,"he said. "And the news that we're going to have to pay a Brexit bill is well baked into the price." "The market is over-bearish on the UK (but) until real interest rates start rising, either via a more hawkish Bank of England or lower inflation expectations, (the pound) will remain subdued."

Against the euro, sterling was 0.1 per cent down on the day at 90.44 pence, close to its weakest levels since October.

Data on Monday showed British consumer spending fell for the third month in a row in July, in its longest losing streak in over four years, in another sign that the impact of last year's Brexit vote is rippling through to households. "While headline-driven sterling moves have recently subsided, we note that the currency is far from out of the woods when it comes to political event risks," said ING currency strategist Viraj Patel. "We earmark October as the next key month for sterling markets; both the Tory Party Conference...and the final round of opening Brexit talks...will shed light on the stability of the UK political environment, as well as any progress being made when it comes to the UK's 'smooth' exit from the EU."

REUTERS