Sterling fell to an almost four-week low against the dollar on Monday after England announced a new national lockdown, but analysts said hopes for a Brexit deal prevented a bigger drop for the currency.
Prime Minister Boris Johnson announced over the weekend that a one-month lockdown across England would start on Thursday with Britain registering more than 20,000 new coronavirus cases a day and scientists warning the “worst case” scenario of 80,000 dead could be exceeded this winter.
Senior cabinet minister Michael Gove said the one-month lockdown could be extended further, while finance minister Rishi Sunak said he is hopeful the lockdown will be lifted in December.
Sterling was 0.5% lower at $1.2887 by 0930 GMT, after earlier touching its lowest level since Oct. 07 at $1.2854. Versus the euro, the pound was down 0.6% at 90.40 pence.
But analysts said the impact on sterling of the announcement of a second national lockdown in England would be worse if investors weren’t already positioning for a Brexit deal.
“I would say there is perhaps less anxiety about the lockdown… because it’s been offset to some point by the expectation that in a couple of weeks time there may be a Brexit deal,” said Jane Foley, head of FX strategy at Rabobank.
European Union and British Brexit negotiators are set to continue talks in Brussels this week, in a sign both sides are still pushing to avoid a damaging breakdown in trade when a transition period ends on Dec 31.
Editing by Kirsten Donovan