Sterling edged up against the dollar but fell against the euro after worse-than-expected UK GDP data, while investors focused on Brexit negotiations where the “mood music” was seen to have improved.
Britain’s GDP rose 2.1% in August – the slowest increase since the economy began to recover in May from its record slump. Much of what growth occurred was down to the government’s one-off restaurant subsidy scheme.
The data had limited impact on the pound, which was in its third consecutive day of gains against the dollar and only slightly down versus the euro.
Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, said that the GDP data, which calls into question the idea of a V-shaped recovery, had little effect on the market since it was already expected that local lockdown measures would limit economic growth in the fourth quarter.
At 0808 GMT, sterling was at $1.2953, up 0.2% on the day against the dollar. The greenback was heading for a second week of losses as investors increased bets that Joe Biden would win the U.S. presidential election on Nov. 3 and offer fiscal stimulus afterwards.
Versus the euro, the dollar was up around 0.2%, at 91.05 pence per euro.
The week has proven volatile for the British currency as Britain and the EU negotiate their future relationship. Hopes that a no-deal Brexit will be avoided have risen in recent days, ahead of the European Council meeting on Oct. 15-16.
Both sides in negotiations have said a deal is possible, but the pound has ricocheted on contradicting headlines about how much progress has been made.
“The last two weeks have seen some brutal whipsawed price action in sterling,” said Stretch.
“There is going to be that ongoing susceptibility to Brexit headlines but the mood music still seems to be reasonably positive,” he said, adding that sterling could test the key $1.30 level again if the risk environment remains constructive.
Ireland’s foreign minister said on Friday that he believed Britain and the European Union could strike a limited trade deal.
British finance minister Rishi Sunak will announce later on Friday a new plan to support jobs at risk from the coronavirus pandemic.
– Reuters