Sterling edges lower as dollar jumps after Fed minutes

By Joice Alves

LONDON (Reuters) – Sterling edged lower on Monday against a broadly stronger dollar after less dovish than expected minutes from last month’s U.S. Federal Reserve meeting, which prompted bears to buy into the heavily shorted greenback.

Last trading at $1.3075, down 0.3% on the day , the pound was distant from the eight-month high of $1.3276 it touched on Tuesday.

Against the euro, sterling fell 0.1% at 90.44 pence (EURGBP=D3).

The Fed minutes were vague, merely saying a number of committee members thought it would be helpful to make a revised statement on its policy strategy at some point, without providing details or timing.

But that was enough to push risk assets – a category recently including sterling in that the currency strengthens when improving market sentiment weakens demand for the safe-haven dollar – into a likely short-lived correction.

“Risk assets around the world are suffering a corrective 24-hours,” said ING analysts.

“The catalyst has been a set of FOMC (Federal Open Market Committee) minutes that has failed to feed the rally by seemingly neither offering enough clarity on strategy changes nor fresh stimulus”.

Analysts said breaking below $1.30 shouldn’t be an issue for cable as the coronavirus pandemic and Brexit worries mostly justify a sterling depreciation.

Six-month risk reversals – the difference between put and call options – suggest money managers prefer selling the pound over buying it in the period which incorporates Britain’s full exit from the European Union in December.

The UK has reiterated many times it still hopes for a post-Brexit trade deal to be achieved in September, while both parties have given themselves a self-imposed deadline by October.

In theory, there is still time until the end of this year to forge a deal, but with little obvious progress so far, the amount of time available looks limited, analysts say.