Sterling holds above $1.30 as dollar weakness outweighs GDP slump

LONDON (Reuters) - Sterling held above $1.30 on Wednesday, clinging on to recent gains on the back of dollar weakness, which outweighed the impact of a record drop in Britain’s economic output.

The British pound continued to be driven by a strengthening euro and a falling dollar, with the pound which weakening against the common currency after holding steady during mid-morning European trading.

Kit Juckes, macro strategist at Societe Generale, said sterling/dollar will continue to be determined by the direction of the U.S. currency rather than by economic developments in Britain.

Sterling last traded at $1.3047, flat on the day, but close to the five-month high of near $1.32 it reached last week. It fell 0.6% to 90.53 pence against the euro, its weakest since Thursday.

The UK economy shrank by 20.4% between April and June, when the country’s coronavirus lockdown was tightest, data showed on Wednesday, representing the largest contraction reported by any major economy so far.

“The direction of the print was never in doubt. The drop-off...may be accounted for, in part, by the timing of the lockdown as compared with other economies,” said Kieran Cleere, Director of Market Risk Solutions at Silicon Valley Bank.

June’s GDP data, meanwhile, offered the first window into the recovery as restrictions eased and the economy began to recoup losses, growing 8.7% month-on-month.

“The easier post-lockdown economic gains may soon be realised and so markets will be looking to establish how much of this momentum will be sustained,” Cleere said.

With Brexit negotiations taking a breather, Britain said on Wednesday its latest round of trade talks with the United States made positive progress in many areas, and that both sides agreed negotiations should continue at pace in the coming months.