Sterling weakens against resurgent dollar

© Reuters. FILE PHOTO: A picture illustration of U.S. dollar Swiss Franc British pound and Euro bank notes

LONDON (Reuters) – The British pound lost ground against a resurgent dollar on Friday, as currency traders took some risk off the table amid rising U.S. bond yields.

U.S. Federal Reserve Chair Jerome Powell failed to soothe investor concerns about a recent surge in borrowing costs as he spoke at a Wall Street Journal forum on Thursday, pushing the safe-haven dollar higher.

Sterling fell to a three-week low against the dollar, down 0.5% at $1.3825.

The pound had reached as high as $1.42 last month – its highest level since 2018 – as optimism built about Britain’s swift introduction of COVID-19 vaccines and expectations of a robust economic recovery.

“The dollar is rebounding along with longer term U.S. yields, which is triggering a reversal of trades including for the pound,” said Lee Hardman, currency economist at MUFG.

“But the fundamentals are moving in a positive direction for the pound with the vaccine rollout and growing hopes of a recovery. The pound should strengthen after this near-term correction.”

Analysts said British finance minister Rishi Sunak’s budget plan for the economy this week, which included a further extension of pandemic stimulus packages and some tax rises, could also ultimately strengthen the pound.

“This should keep fiscal policy loose, which should keep the Bank of England in a hawkish mood while expecting a robust economic recovery in the next few months. This mix should keep supporting sterling beyond $1.40,” said Gaetan Peroux at UBS.

Against the euro, the pound dipped around 0.1%, last at 86.28 pence.

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