The pound rises against the weaker euro, gains seen as temporary

LONDON (Reuters) – Sterling gained generally weaker against the euro on Friday, accounting for some of its losses against the common currency at the start of the new year, although it was still on track to end the week in the red .

The rise in market prices of negative interest rates from the Bank of England following new measures to block the coronavirus in the UK has affected the pound, limiting gains from the Brexit agreement agreed at the end of last year.

Markets have been setting prices below zero from the British central bank since May 2021.

Analysts warn that this will limit sterling gains against the euro.

“Euro-pound remains above 0.90 (pence) as rising rate-lowering expectations (after the third blockade) offset the positive effect of the UK-EU trade deal,” said ING Bank strategists. in a note to customers.

“Although we still see room for the pound-euro to fall slightly below 0.9000, this should be limited, given the growing risk of further easing by the Bank of England, while the pound will benefit more. less than the favorable overall risk environment compared to cyclical counterparts, such as the Swedish krona or the Norwegian krone. “

The pound gained up to half a percent against the euro, to 89.98 pence, trading 0.3% higher at 90.14 pence, after trading in the late afternoon in London.

It was 0.1% higher against the dollar at $ 1.3582.

The pound began in 2021 at the highest levels against the dollar in May 2018, after the United Kingdom concluded a last-minute trade agreement with the EU. These gains have rapidly evaporated as the UK faces increasing cases of COVID-19 amid the discovery of a new variant of the virus.

The British economy is also starting to feel the ramifications of life outside the EU: more than 50 British retailers, including Tesco and Marks & Spencer, are facing potential tariffs for re-exporting goods to the European Union, their trade body said. makes the UK less competitive.

A survey by Deloitte showed that a wave of optimism affected the heads of large British companies in December, before tightening COVID-19 restrictions this month, even though many believed it would take a long time to fully recover from the pandemic.

However, half of respondents said it would take at least until the end of 2021 before revenues returned to their pre-pandemic levels – following a Bank of England poll released this week.

The UK job market strengthened for the first time in three months in December, ahead of a renewed deadlock this month, with an increase in permanent employment and a slight increase in the number of vacancies, according to a monthly survey by the UK. recruiters.