Sterling Consolidates Near Six-Day Highs vs Dollar, Euro

Sterling Approaches Six-Day High Against Major Currencies

By Ritvik Carvalho

LONDON(Reuters) -Sterling consolidated near a six-day high against both the dollar and the euro on Monday, extending gains from a late recovery last week after it hit its lowest levels since December 2020.

Rising inflation expectations early last week saw bond yields climb higher and hit risk sentiment in equity markets, pushing sterling to $1.3412, its lowest level since December 2020. Sterling moves closely in line with global risk sentiment.

The pound has recovered since the latter part of last week, hitting $1.3610 by afternoon trade in London on Monday, its highest since Sept. 28. That leaves the currency slightly negative to the dollar on the year.

Sterling was one of the best-performing G10 currencies against the dollar in the first half of 2021, boosted by a global reflation trade and optimism over Britain’s vaccination programme. But a post-Brexit hangover has left Britain facing a range of problems from a shortage of workers in supply chains and disputes with the EU over Northern Ireland.

Shortages of workers after Brexit and the COVID-19 pandemic have sown disarray in some sectors of the economy, disrupting deliveries of fuel and medicines and leaving more than 100,000 pigs facing a cull due to a lack of abattoir workers.

Britain’s Brexit minister David Frost has drawn up proposals to permanently replace the Northern Ireland Protocol, a part of the Brexit divorce deal, and the government will make a decision by the end of next month, British newspapers reported.

Ministers are also due to make a decision by the end of next month on whether to suspend the Northern Ireland Brexit deal unilaterally, The Times reported.

“GBP has been volatile – caught behind a surprisingly hawkish Bank of England and lingering Brexit travails – particularly over the sea border with Northern Ireland,” said ING analysts Francesco Pesole and Chris Turner in a morning note.

Regarding the EU’s response to Britain’s proposals on Northern Ireland, Frost told the Conservative Party Conference in Manchester: “We cannot wait for ever. Without an agreed solution soon, we will need to act, using the article 16 safeguard mechanism, to address the impact the protocol is having on Northern Ireland.”

Against the euro, sterling was largely unchanged at 85.61 pence per euro.

“Largely a consolidation of last week’s sell-off, with the return of broader risk appetite helping lift risky currencies like the pound,” said Viraj Patel, FX and global macro strategist at Vanda Research.

“We wouldn’t read too much into the Chancellor’s additional job support measures announced today – and there are still a myriad of headwinds,” Patel added, noting that supply disruptions and Brexit are material headwinds to consumer confidence in the fourth quarter.

(Reporting by Ritvik Carvalho; Editing by Hugh Lawson)