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UPDATE 2-Dollar rebound spoils sterling's rally

Fri, 7th Aug 2020 11:37

* 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, updates chart)

By Elizabeth Howcroft

LONDON, Aug 7 (Reuters) - Sterling resumed its role as a
risk-driven currency on Friday and was on track for its biggest
daily fall since June against the dollar, as global market
sentiment turned sour after the latest standoff between
Washington and Beijing.

World stocks tumbled and the U.S. dollar rose after U.S.
President Donald Trump banned U.S. transactions with two popular
Chinese apps: Tencent's messenger app WeChat and ByteDance's
video-sharing app TikTok.

Ties between the world's two largest economies have been
strained for months, with the United States blaming China for
the novel coronavirus outbreak and moves to curb freedoms in
Hong Kong.

U.S. jobs data showed that employment growth slowed
considerably in July, but the dollar still strengthened, acting
as a safe haven currency.

Cable fell as low as $1.3010 and was not far off that at
$1.3053 at 1530 GMT, down 0.7% since New York's close, having
earlier been on track for its biggest daily fall since June
.

Having rallied since the end of June, it was on track to end
the week down 0.3%, compared with its 2.3% rise last week and
1.8% rise the week before.

Versus the euro sterling was little changed at 90.36 pence
per euro.

The pound rose to a five-month high on Thursday after the
Bank of England struck a less pessimistic tone about the
coronavirus-battered British economy.

Traders also took confidence from the absence of signals
that the BoE might introduce negative rates. The possibility of
negative rates has been cited by analysts as a reason for recent
sterling weakness.

A Reuters poll found that sterling is expected to lose some
of its gains this year due to fears around Brexit and COVID-19.

The range of 12-month forecasts was wide: $1.18 to $1.44.

"Over the coming weeks, we think the market will be more
focussed on headlines surrounding the ongoing Brexit
negotiations rather than monetary policy," Morgan Stanley
analysts wrote.

Britain's transition period with the European Union is due
to end on Dec. 31, after which it will leave the single market
and customs union.

No post-Brexit trade deal has been struck, but Britain's top
minister overseeing Brexit talks, Michael Gove, said that there
had been a change of tone from the EU in recent weeks, allowing
progress to be made.

UK unemployment and second-quarter GDP data are due next
week. Rishi Sunak, Britain's finance minister, said on Friday
that extending the country's furlough scheme, which is due to
expire at the end of October, would leave some workers trapped
in the false hope that they could return to their jobs after the
pandemic.

(Reporting by Elizabeth Howcroft; Editing by Larry King and
Hugh Lawson)

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