LONDON (Reuters) – The British pound climbed towards five-month highs on Tuesday, benefiting from broad-based dollar weakness even as data showed job losses in Britain jumped to their highest levels in more than a decade in the three months to June.
Against a basket of rival currencies, the U.S. dollar fell nearly 0.5% towards more than two-year lows amid growing concerns the U.S. economy will underperform its rivals due to its struggles to contain the coronavirus pandemic.
“With the dollar weakening, we have also seen the pound appreciating slightly on the back of that,” said Morten Lund, an analyst with Nordea. “When we have seen some speculative positioning being unwound, that has led to a stronger pound.”
But expectations about further pound gains were also muted.
Though Britain’s unemployment rate unexpectedly held steady at 3.9% and a second consecutive month of growth in retail sales indicated an economy on the mend, a nearly 7% rally in the British currency over the past six weeks has raised concerns the pound’s gains may be overdone in the short term.
“Official jobs data continues to be insulated by the government’s furlough scheme, but there is little doubt that the unemployment rate will creep higher as that scheme is gradually unwound, which explains (the pound’s) muted reaction,” said ING analysts in a note.
Against the greenback, the pound was broadly up at $1.3105. It hit a March 2020 high of $1.3185 last week. Versus the euro, it drifted to a one-month high of 89.82 pence.
British finance minister Rishi Sunak said the government was unable to protect every job hit by the coronavirus pandemic after data showed the biggest fall in employment in the country since 2009.
The number of people employed fell by 220,000 between March and June, according to the Office for National Statistics.
While hedge fund short bets on the pound have fallen in recent weeks, latest positioning data revealed a large bearish bet on the pound.
With the economic impact of the coronavirus crisis and a tricky period of negotiations ahead to strike a Brexit trade deal before a transition period ends in December, analysts said policymakers will have to resort to more steps to support the economy, including cutting interest rates to zero.