Pound knocked by sour market mood, but set for weekly gain

LONDON, Jan 15 (Reuters) – Sterling fell on Friday, taking a hit from a deteriorating global risk backdrop, though data showing Britain’s November lockdown was less damaging for the economy than expected kept a floor under the currency.

Sterling was still on track for its best week against the euro since early April. It headed for a weekly gain versus the dollar too as markets pushed back expectations of negative interest rates in Britain, which has kicked off a speedy vaccination drive.

Earlier, the pound touched an almost two-month high against the euro, after data showed Britain’s economy shrank 2.6% in November, a smaller decline than most analysts expected.

But an apparent worsening in global economic recovery prospects due to lockdowns boosted the dollar. By 1500 GMT, the pound had edged 0.2% lower to 89.00 pence against the euro , after trading earlier at 88.66 pence, its highest since Nov. 11.

Sterling was “performing well against the euro given the better-than-expected GDP data this morning,” said Neil Jones, head of FX sales at Mizuho Bank. The subsequent slide came as “risk aversion is setting in” on the back of dollar strength, Jones added.

Against the greenback, sterling slipped 0.7% to $1.3594, touching a three-day low and moving away from the 20-month high of $1.3712 touched in the previous session.

Following the completion of a Brexit trade deal in December, investors have turned their attention to Britain’s economy and its COVID-19 vaccination campaign.

Since Bank of England Governor Andrew Bailey this week dampened expectations for sub-zero rates in Britain, market pricing for negative interest rates has been pushed back by nearly a month to June 2021.

Meanwhile tougher restrictions have started to have some effect on the spread of COVID-19 and Britain is set to step up coronavirus vaccinations, with 500,000 doses a day by next week, the Financial Times reported on Thursday, citing a Scottish government document.