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UPDATE 1-Sterling set for biggest monthly rise in more than a decade as dollar slides

Fri, 31st Jul 2020 15:33

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

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

By Saikat Chatterjee

LONDON, July 31 (Reuters) - The pound advanced towards $1.32
on Friday, on track for its biggest monthly rise in more than a
decade as a broad-based dollar decline fuelled demand for the
British currency.

But concerns of a second wave of infections, a weak economy
and growing pressure to strike a Brexit trade deal before a
transition period ends in December are prompting investors to
become wary of the currency's prospects in coming months.

Bank of America Merrill Lynch strategists, who have been
bearish on the pound, said the rest of 2020 could see weakness
in the currency, especially as the period of August through
December historically contains four negative months for
sterling.

"The fortunes of the pound will increasingly be driven by
the monetary policy stance, the ability of the economy to
rebound from the global pandemic, and Brexit negotiations, which
are effectively stuck in the mud," the strategists said.

On Friday, the pound rose 0.5% to $1.3159, its highest level
since early March. On a monthly basis, it is up nearly 6%, its
biggest rise since May 2009, according to Refinitiv data.

The pound's gains can be attributed to the dollar's losses.

The greenback has fallen nearly 5% in July, with most of the
drop coming in the last 10 days as new cases of coronavirus
surged across several U.S. states and some recent data pointed
to an economic recovery losing steam.

British Prime Minister Boris Johnson said on Friday some
lockdown easing planned for the whole of England would need to
be delayed and the country's chief medical officer said any
further opening up of the economy would raise infection rates.

Concerns over the struggling economy have prompted hedge
funds to unwind their bullish bets on the pound in recent weeks
while derivatives data signal more weakness ahead.

(Reporting by Saikat Chatterjee
Editing by David Holmes)

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