Sterling Steadies Above $1.41 as Risk Currencies Gain

By Ritvik Carvalho

LONDON (Reuters) – A rally in risk currencies on Thursday helped Britain’s pound steady near $1.41, a day after it hit its highest levels in nearly three years.

Sterling surged to $1.4295 on Wednesday, as analysts maintained a positive outlook on the currency.

Bets that Britain’s vaccine rollout will enable a quicker reopening of its economy and relief over a Brexit trade deal have pushed the pound up 3.5% against the dollar, making it the best-performing G10 currency this year.

U.S. Federal Reserve Chair Jerome Powell on Wednesday calmed fears that higher inflation would also lead to a tapering of monetary stimulus, saying the central bank would not change policy until the economy was clearly improving.

On Thursday, a broad risk-on tone in markets after Powell’s assurances spurred a rally in commodity-linked currencies such as the Canadian, Australian and New Zealand dollars and the Norwegian crown, pushing the dollar and other safe haven’s lower. [FRX/]

“Classical FX havens are weakening (CHF, JPY) and risk currencies such as GBP and NOK are performing well as U.S. rates are now rising in tandem with equities and commodities,” said Lars Sparresø Merklin, senior analyst at Danske Bank.

The pound is correlated with risk and growth and tends to gain along with risk-on plays in markets. It traded 0.1% higher at $1.4163 by 0911 GMT. It was 0.1% lower to the euro at 86.22 pence.

Issues over Brexit still simmer, although analysts maintain they won’t hurt the pound in the short to medium-term.

Northern Ireland’s first minister upped the ante on Wednesday in a dispute between the UK and the European Union over trade with the province, calling on Prime Minister Boris Johnson to “step up and protect the United Kingdom”.

Earlier, the UK and the EU held talks and agreed to press on with work to resolve the difficulties that have impeded deliveries of goods, notably food, from other parts of the United Kingdom to Northern Ireland and caused some shortages in supermarkets.

The dispute, which was heightened when the EU involved Northern Ireland in a COVID-19 vaccine ban, has cast a shadow over a post-Brexit trade deal agreed late last year and threatens to further sour future ties between the neighbours.

(Reporting by Ritvik Carvalho; editing by Larry King)