Sterling gained against a broadly weaker euro on Friday, making up some of the losses it sustained against the shared currency as the new year began, though it was still on track to end the week in the red.
Increased market pricing of negative interest rates from the Bank of England following fresh lockdown measures in Britain to combat the coronavirus has dented the pound, capping gains made in the wake of the Brexit deal agreed at the end of last year.
Markets are pricing subzero rates from Britains central bank as early as May 2021.
Analysts caution this will limit sterlings gains against the euro.
Eurosterling remains above the 0.90 pence level as the buildup of rate cut expectations following the third lockdown offsets the positive effect of the UKEU trade deal, said strategists at ING Bank in a note to clients.
While we still see room for eurosterling to mildly drop below the 0.9000 level, this should be limited given the rising risk of further Bank of England easing, while sterling is to benefit less from the conducive global risk environment in comparison to its European cyclical peers such as Swedens krona or Norways krone.
Sterling gained as much as half a percent against the euro to 89.98 pence in early trading in London.
It was 0.1 higher to the dollar at 1.3579.
Sterling began 2021 at its highest levels against the dollar since May 2018 after Britain clinched a lastminute trade deal with the EU. Those gains have evaporated fast as Britain grapples…