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UPDATE 1-New lockdown measures and no-deal Brexit risks depress Sterling

Wed, 23rd Sep 2020 12:28

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Updates prices, adds comment and chart)

By Elizabeth Howcroft

LONDON, Sept 23 (Reuters) - Sterling extended its losses
against the dollar and euro on Wednesday, and is having its
worst month in four years as new coronavirus lockdown measures,
the looming risk of a no-deal Brexit and talk of negative rates
weigh on the currency.

Prime Minister Boris Johnson ordered restaurants and bars to
close early and told British people to work from home where
possible, in new measures which he said could last for six
months.

The pound fell on the news, dipping below its 200-day moving
average overnight, with losses compounded by a bounceback in the
dollar, which has seen cable fall for three days straight.

"This is another negative impacting already grim GBP
prospects, which however remain primarily driven by developments
in EU-UK negotiations - where we have so far seen very little
progress," ING strategists wrote in a note to clients.

The possibility of a no-deal Brexit is also weighing on the
pound, although Britain has said it believes a trade deal is
still possible.

Arriving in London for informal Brexit talks, the European
Union's chief negotiator said he was determined to get a deal.

Johnson is close to getting parliamentary approval for his
Internal Market Bill, which angers the European Union by
breaking the Withdrawal Agreement struck in January.

At 1050 GMT, sterling was at $1.2725, down 0.1% since New
York's close, having hit a 2-month low of $1.2676 earlier in the
session. It has lost 4.8% so far in September, making
this the pound's worst month since 2016.

Versus the euro, it was down around 0.1%, at 92.015 pence
per euro, in its fifth consecutive day of losses.

British PMI data indicated the recovery from the first
coronavirus lockdown lost momentum in September.

"The UK upswing will moderate sharply in the months to come
– rising Brexit risks will reinforce the slowdown," wrote
Berenberg economists Holger Schmieding and Kallum Pickering.

UBS Global Wealth Management wrote in a note to clients that
a no-deal Brexit cannot be ruled out and would push the pound
down to $1.25.

Analysts also say the possibility of negative rates is a
downside risk for sterling.

Bank of England Governor Andrew Bailey said on Tuesday that
the Bank's latest policy statement did not imply it would
necessarily use negative interest rates, and that observers
should not read too much into it.

(Reporting by Elizabeth Howcroft; Editing by Angus MacSwan and
Barbara Lewis)

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