LONDON (Reuters) – Sterling rose on Tuesday as investors readjusted their portfolios at the end of the first quarter of 2020, although analysts said the currency remained fragile.
FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/Illustration
The pound fell earlier in the day against the dollar as the U.S. currency gained strength due to its safe-haven properties amid the spread of the coronavirus.
The dollar remained bid, but positioning in the pound reversed.
The British currency last traded up 0.2% at $1.2449. It rose 0.6% against the euro to 88.35 pence.
“I’ve spoken to our traders this morning and they said that trading in sterling today was very much dominated by positioning in the quarter end,” said Jane Foley, senior FX strategist at Rabobank.
Sterling remains fragile however, Foley said, given Britain’s current account deficit, which now more than ever puts the country in a weaker position in the face of the global slowdown caused by the coronavirus.
“Sterling is still going to be vulnerable in the height of dollar buying,” she said.
Concerned by the number of growing COVID-19 cases in the United States, where the reported cases are nearly double those in China, investors continue to buy the dollar against other major currencies considered riskier than their U.S. counterpart.
Pressure on sterling early in the day also came from a survey published on Tuesday showing that confidence among British companies slumped in the second week of March as the coronavirus crisis gathered pace, but before the government shut much of the economy to slow its spread.
In addition, the ratings agency Fitch cut Britain’s sovereign debt rating last week, saying the country’s debt would surge as the government ramped up spending to offset the near shutdown of the economy in the face of the virus.
“Because of the U.K.’s current account deficit, sterling during this crisis is acting like a high beta currency,” which means a currency prone to higher volatility and risk, said Athanasios Vamvakidis, head of G10 forex strategy at Bank of America Merrill Lynch.
For the now, though, the fall in sterling is “mostly a dollar move,” he said.
Vamvakidis said he closed his long position on sterling this week when the currency rose close to $1.25. The key driver for foreign exchange markets, he said, including sterling, will be whether government lockdowns in response to coronavirus deliver results.
Leveraged funds cut their net long positions on the pound in the week to March 24, according to the latest CFTC data.
Reporting by Olga Cotaga, editing by Larry King and Susan Fenton
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