Pound gyrates amid new restrictions, BOE comments

Sterling recovered as much as 0.08% to $1.2826 against the dollar

  
British Pound Sterling banknotes are seen in a counter machine at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. Image used for illustrative purpose.

British Pound Sterling banknotes are seen in a counter machine at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. Image used for illustrative purpose.

REUTERS/Leonhard Foeger

LONDON- Sterling wavered between losses and gains on Tuesday, at one point slipping to two-month lows against the dollar, as British Prime Minister Boris Johnson prepared to impose new restrictions to tackle a second wave of the coronavirus outbreak.

The pound was down 0.16% at $1.2795 at 1000 GMT after recovering as much as 0.13% against the dollar and sliding as low as 1.2714 earlier on Tuesday, its lowest since July 23 .

The pound was at 92 pence against the common European currency .

"Sterling's slide at the beginning of the European session today underpinned the concerns that the investors have for the UK economy, which is right in the middle of this," said Gavin Friend, senior FX strategist at NAB Group.

The pound recovered after Bank of England Governor Andrew Bailey said the latest policy statement did not imply BOE would necessarily use negative interest rates, and that observers should not read too much into it.

Johnson will tell people on Tuesday to work from home and announce new curbs on pubs, bars and restaurants, stopping some way short of a full national lockdown of the sort he imposed in March. 

"Assuming a full two-week lockdown ('circuit-breaker') is avoided, the markets may show signs of relief given there has for some time been a strong assumption that full lockdowns like in March-May would be avoided," MUFG Research said in a note.

Latest weekly positioning data show a small long position in favour of the British pound, but the magnitude of the long bets is barely above zero and is far below the highs of nearly $2.8 billion in March.

However, the positioning data is at odds with signals from the derivative markets which point to more weakness for the pound. Three-month risk reversals, a ratio of calls to puts for the currency, are approaching 2020 lows.

"The UK also has some pretty unique challenges with Brexit," Friend said. "If a deal is struck, sterling is going to rally hard, and if there isn't, sterling is going to be vulnerable. That's why markets are very flighty on sterling."

The British government is attempting to pass a bill through Parliament that would allow it to break its Withdrawal Agreement with the European Union.

(Reporting by Maiya Keidan, additional reporting by Thyagaraju Adinarayan and Saikat Chatterjee; editing by Sinead Cruise, Larry King) ((Maiya.Keidan@thomsonreuters.com; 44 207 542 1594; Reuters Messaging: maiya.keidan.thomsonreuters.com@reuters.net))

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