Virus mutation keeps euro, pound under pressure

London

THE euro and the pound were on the defensive against the US dollar on Tuesday as a new coronavirus strain spread across Britain, closing key trade routes and creating a supply-chain nightmare while time was running out to strike a post-Brexit trade deal.

The pressure on European assets, however, eased after a sell-off on Monday caused by shut-down of the border with France and angst over Brexit trade talks.

With European stock markets back in positive territory, sentiment improved on foreign exchange markets for Europe's top currencies.

At 11.48am GMT, the euro was down 0.11 per cent at US$1.2235 and the pound was losing 0.44 per cent at US$1.3412, after falling as much as 2.5 per cent the day before.

Sterling was also down 0.30 per cent at 91.20 pence against the euro after heavy losses on Monday.

However, data showed Britain's economy recovered quicker than expected in the third quarter from its coronavirus crash.

Talks between the French and British governments to reopen their border continued, but trade talks between the European Union (EU) and the UK remained stalled, with disagreements over fishing rights the main obstacle.

The US dollar index, which measures it against a basket of currencies, rose just 0.05 per cent at 90.167 after the US Congress agreed on the new stimulus package.

The greenback's timid gains come in a market that is positioned for a weaker US dollar. It is pricing in a pandemic recovery that lifts commodity prices and benefits exporters and their currencies at the expense of the US dollar. The value of overall bets against the US dollar eased last week, positioning data showed, but remains near nine-year highs struck in September.

But Britain crashing out of the EU without a trade deal and expectations that the new coronavirus could worsen the economic outlook of Europe might dent the consensus, said Marios Hadjikyriacos, an analyst at XM.

"If the eurozone and Britain are forced to play the rolling shutdown game until the vaccines are fully deployed, then the popular narrative for a weaker US dollar into 2021 may come under heavy fire as America heals its economic wounds faster," he wrote to clients in a note. REUTERS