Sterling rises on delayed response to Sunak's economic plan

[LONDON] Sterling rose 0.3 per cent on Thursday against the US dollar as investors showed a delayed response to finance minister Rishi Sunak's announcement of his plans to revive the economy, but Brexit risks continued to weigh on the British currency.

Mr Sunak promised an additional £30 billion (S$52.57 billion) on Wednesday to help the coronavirus-hit economy, announcing bonuses to get furloughed staff back to work, cutting value-added tax for the hospitality sector, and temporarily scrapping a property tax on purchases of homes costing up to £500,000.

Investors barely reacted to the news immediately after the announcement, and sterling was steady on Wednesday a day after hitting three-week highs against both the US dollar and euro.

But the pound extended gains on Thursday, up 0.3 per cent against a broadly weaker dollar to US$1.2644 and up 0.1 per cent to 89.68 pence versus the single currency.

"There has been a little bit of a delayed response, I think, to the fiscal story here in the UK," said Stephen Gallo, European head of the FX strategy at BMO Financial Group, adding that Brexit risks limited the sterling rise.

"If it weren't for the Brexit factor, which is holding down the pound, I think the pound would be significantly higher now because the UK has a much more dynamic fiscal story than the eurozone as a whole," Mr Gallo said.

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British and European Union (EU) negotiators kicked off on Tuesday a new round of talks to discuss their future trading relationship.

Germany's Chancellor Angela Merkel said she will continue to push to seal an agreement by the end of the year, but the EU should prepare for the possibility of a no-deal scenario.

Britain, which left the EU on Jan 31, wants the same terms as Australia has if it cannot agree on a trade, Prime Minister Boris Johnson told Germany's Angela Merkel in a telephone call on Tuesday.

REUTERS