Sterling fell to an almost fourweek 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 onemonth 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 onemonth 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 werent already positioning for a Brexit deal.
I would say there is perhaps less anxiety about the lockdown… because its 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…