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UPDATE 1-Sterling holds above $1.31 as dollar jumps after Fed minutes

Thu, 20th Aug 2020 12:05

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

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Adds graphs, updates news and rates)

By Joice Alves

LONDON, Aug 20 (Reuters) - Sterling touched a one-week low
on Thursday but held above $1.31 as less dovish than expected
minutes from the U.S. Federal Reserve's latest policy meeting
prompted bears to buy into the heavily shorted greenback.

The pound traded at $1.3127, up 0.2% on the day, at
1050 GMT, recovering from a session low of $1.3062 hit in early
trade but still far from Tuesday's eight-month high of $1.3276.

Against the euro, sterling fell 0.2% to 90.17 pence
.

The Fed minutes were vague, merely saying a number of
committee members thought it would be helpful to make a revised
statement on its policy strategy at some point, without
providing details or timing. They also struck a cautious tone
about the U.S. economic recovery.

That was enough to push risk assets - a category recently
including sterling in that the currency weakens when
deteriorating market sentiment strengthens demand for the
safe-haven dollar - into a likely short-lived correction.

"Risk assets around the world are suffering a corrective
24-hours," said ING analysts.

"The catalyst has been a set of FOMC (Federal Open Market
Committee) minutes that has failed to feed the rally by
seemingly neither offering enough clarity on strategy changes
nor fresh stimulus".

The pound has gained more than 7% against the dollar in the
past three months, but analysts have pointed out that this has
more to do with the performance of the greenback. It is not a
case of being over optimistic on cable as the coronavirus
pandemic and Brexit worries mostly justify a sterling
depreciation, they say.

Six-month risk reversals - the difference between put and
call options - suggest money managers prefer selling the pound
over buying it in the period which incorporates Britain's full
exit from the European Union in December.

The UK has reiterated many times it still hopes for a
post-Brexit trade deal to be achieved in September, while both
parties have given themselves a self-imposed deadline by
October.

In theory, there is still time until the end of this year to
forge a deal, but with little obvious progress so far, the
amount of time available looks limited, analysts say.

(Reporting by Joice Alves
Editing by David Holmes, Kirsten Donovan)

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