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UPDATE 1-Sterling extends gains as BoE promises further action if needed

Thu, 26th Mar 2020 12:38

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

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

By Iain Withers

LONDON, March 26 (Reuters) - Sterling extended gains against
the dollar on Thursday, as the Bank of England said it was
prepared to take further action to limit the economic damage
from the coronavirus outbreak and held benchmark rates at
rock-bottom levels.

The BoE, which made two emergency rate cuts and ramped up
its bond-buying programme earlier this month, promised more
asset purchases if needed to stop a coronavirus-related shutdown
from plunging the country into a long recession.

Separately, finance minister Rishi Sunak is expected later
on Thursday to detail how he plans to support Britain's 5
million self-employed workers through the crisis.

The pound regained ground versus the greenback, briefly
touching $1.20 before the BoE update for the first time since
its sharp fall on March 18 to levels not seen since 1985.

It was last up 0.5%, changing hands at $1.1932..

Against the euro it was flat at 91.60 pence per euro

The pound has been hammered in recent weeks amid panic in
global markets and as investors scrambled for dollars - the
world's most liquid currency and one seen as a safe haven in
times of crisis.

A $2 trillion stimulus package agreed by U.S. politicians to
shield the world's biggest economy and co-ordinated action by
central banks including the BoE to boost the supply of dollars
have helped ease stress in money markets and some of the selling
pressure on sterling.

"Sterling will continue to trade mainly based on global
market sentiment," said Antje Praefcke, an analyst at

On Wednesday, the pound swung from $1.1971 to $1.1640 within
a few hours, showing how volatile trading conditions remain.

Implied sterling-dollar volatility is down from last week's
long term peaks but remains high, suggesting further big moves
could be in store.

"We have a strong combination of Brexit and coronavirus
uncertainty that creates a difficult situation for the UK in
comparison to the rest of the world," Christophe Donay, head of
asset allocation and macro research at Pictet Wealth Management,
told a media call.

"Relatively speaking the UK is in a tough situation. The
current account deficit is high ...This is all not a great
signal for sterling versus the other currencies."
(Reporting by Iain Withers, Additional reporting by Dhara
Ranasinghe; ; editing by John Stonestreet and Gareth Jones)

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