The pound fell against the dollar and euro on Thursday, on track to end its longest winning streak against the U.S. currency in 2-1/2 years as Brexit-related concerns and speculation about negative rates weighed on sterling again.
The pound had risen 3.9% against the dollar in 10 consecutive days of gains starting on May 28 – its longest winning streak since January 2018.
Analysts say it is behaving like a “risk currency”, in that it strengthens when improving market sentiment weakens demand for the safe-haven dollar.
“Sterling has been rallying against the U.S. dollar. While we see specific reasons for an appreciation of the pound, the move underlines the broader vulnerability of the U.S. dollar, especially as fears over COVID-19 subside,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
But this trajectory looked set to end on Thursday, as the pound changed course and fell back below $1.27.
The dollar bounced against riskier currencies after the U.S. Federal Reserve’s economic outlook spooked investors.
Versus the dollar, the pound fell as much as 0.8% on the day to $1.2651 at 0710 GMT, having risen to a three-month high above $1.28 on Wednesday. By 1025 GMT it was down 0.5% at $1.2687, having eased some losses as the dollar’s gains wore off.
Against the euro, the pound fell overnight, then steadied in early London trading. By 1025 GMT it was at 89.70 pence, down around 0.5% on the day..
The market has its largest net short speculative position on the pound since November 2019, as Brexit and speculation about negative rates pose downside risks.
Britain has left the European Union but the main terms of its membership remain in place during a transition period until the end of 2020, by when both sides hope to negotiate a new trade deal.
“Sterling on its back foot and a weak close today could point to a consolidation toward 1.2500, with the prospect of tough Brexit negotiations stretching out from here,” John Hardy, Saxo Bank’s head of FX strategy, wrote in a note to clients.
Britain has until the end of the month to request an extension to the transition period. A fourth round of Brexit negotiations ended with little progress.
The EU’s Brexit negotiator, Michel Barnier, urged London to adjust its demands on Wednesday, saying Britain was seeking a trading relationship with the EU that was too close to that of a member.
A Reuters poll of more than two dozen economists gave a median forecast for an 18.4% month-on-month plunge in Britain’s gross domestic product in April – although there was an unprecedented range of views.