LONDON (Reuters) – Sterling went down higher for a second consecutive session Wednesday as the U.S. dollar weakened after Democrats took the lead in runoff votes that will decide control of the U.S. Senate.
Market watchers believe that a Democratic-controlled Senate would help global economic growth and therefore most risk-averse assets, but slow down bonds and the dollar with the U.S. budget and trade deficits likely to grow.
In early trading in London, the British pound rose 0.1% higher to $ 1.3638 against a struggling dollar, close to the May 2018 high of $ 1.37 confirmed on Monday. Against the euro, the pound was stable at 90.36 pence.
“With the medium or long-term outlook of the market still heading towards the ‘back to normal’ trade, the downside of the pound should be limited, especially as the a very neutral situation, ”said Jordan Rochester, a strategist at Nomura.
For now, however, markets remain cautious about the pound’s outlook.
The expected downturn in the economy as a result of a new national closure announced this week raised expectations that the Bank of England will announce further policy easing.
Money markets now expect the central bank to bring interest rates into negative territory as early as May, compared to an estimate in August just after the Brexit deal was struck.
And while a bullish pound bet has recorded a consecutive fourth week of gains, according to weekly position data the size of the gains in the most recent week is much smaller than in previous weeks.
Reciting with Saikat Chatterjee; edited by Larry King