Pound pinned near $1.37, eyes first weekly gain in a month ahead of Jackson Hole

Britain’s pound was pinned near the $1.37 mark on Friday and set for its first weekly gain on the dollar since the end of July, as a recovery in global risk sentiment helped lend support to riskier and growth-correlated currencies.

External drivers, such as movements in the dollar on the back of risk sentiment in world stock markets, have largely driven sterling in recent weeks.

Earlier this year, Britain’s pace of COVID-19 vaccinations and a broader reflation trade in global markets allowed the pound to be the best performer among its G10 currency peers, but it has since lost that lead as the U.S. Federal Reserve begins to hint towards future tapering of its stimulus programme.

Hints about future tapering as well as uncertainty over the spreading Delta variant of the coronavirus have in turn dented risk sentiment and fuelled a bid for the dollar.

Investors will keep their eye on the annual Jackson Hole conference taking place later today, a gathering of prominent central bankers from around the world. Fed Chair Jerome Powell will speak at 1400 GMT.

Dallas Federal Reserve President Robert Kaplan suggested he expects the Fed to start raising interest rates next year, a comment that analysts took as more hawkish than last week, when he appeared nervous about the potential impact of the Delta variant’s spread on the economic recovery.

Two other regional Fed chiefs – Kansas City Fed President Esther George and St. Louis Federal Reserve President James Bullard – also downplayed the impact of the Delta variant in separate interviews, with Bullard repeating his call for the Fed to start trimming its $120 billion in monthly bond purchases soon.

Against the dollar, sterling traded flat on the day at $1.3703., was also flat against the euro at 85.77 pence per euro.

“The higher sensitivity of GBP compared to the EUR to market risk sentiment has driven EUR/GBP marginally higher yesterday,” ING strategists said in a note to clients.

“Today, with yet again no data releases worth noting in the UK, the risks for EUR/GBP appear still slightly skewed to the upside if the Fed confirms imminent tapering, which could ultimately take a toll on activity currencies more than on funding currencies.”