Pound rallies as risk appetite returns, traders await news on Johnson

[LONDON] Sterling rallied on Tuesday with a broad rebound in risk markets encouraging some selling of the dollar, while traders awaited news on British Prime Minister Boris Johnson, who is stable in intensive care as he battles Covid-19 symptoms.

Mr Johnson, 55, was moved into intensive care late on Monday after his condition deteriorated rapidly over the preceding 24 hours. His foreign minister is deputizing for him to lead the government's response to the outbreak.

Analysts said that while news of Mr Johnson's condition was clearly a concern, beyond a short-lived dip in Asian hours it had not yet moved the pound because it was unlikely to mean a change in the government's policy direction to fight the virus.

"Certainly, losing the head of government is not going to inject 'confidence' into the FX market, but government policy in a non-presidential system is ultimately crafted by the PM and his/her close advisers," said Stephen Gallo, head of European FX strategy at BMO Capital Markets.

"It's also far too early to know what the PM being incapacitated or not making it out of the hospital will mean for UK economic and Brexit policy 3 to 6 months out. When there are too many moving parts, as we saw with the entire Brexit process, sometimes the British pound just simply does nothing."

Against the dollar, sterling extended its overnight gains in London, rising more than 1.2 per cent to as high as US$1.2383 before settling at US$1.2321.

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The dollar, long seen as a safe haven, surged last month when investors panicked about the economic consequences of government-enforced lockdowns to fight the coronavirus.

Sterling fell to as low as US$1.1413 - its weakest since 1985.

But the greenback has dropped this week and stock markets have rebounded sharply as investors welcome signs the rate of new infections across Europe and parts of the United States is peaking.

Against the euro, sterling did far less well and was down 0.2 per cent at 88.38 pence.

In a sign of a healthy appetite for British assets, government bonds attracted their strongest investor demand since 2005. Britain held two bond auctions in a day for the first time and aims to sell a record US$55 billion of government bonds this month.

REUTERS