LONDON, Oct 4 Reuters - Sterling hit an advanced six-day high on Monday against the dollar and the euro, extending gains from a late recovery last week after hitting its lowest levels since December 2020.
Rising inflation expectations early in the week saw bond yields rise higher and hit risk sentiment in equity markets, pushing sterling to $1.3412, its lowest level since December 2019. Sterling moves closely in line with global risk sentiment.
The pound has recovered since the latter part of last week, hitting $1.3610 in the afternoon trade in London on Monday, its highest since September 28th. That leaves the currency slightly negative against the dollar on the year.
Sterling was one of the best-performing G 10 currencies against the dollar in the first half of 2021, boosted by global reflation trading and optimism over Britain's vaccination programme. But a post Brexit hangover has left Britain facing a range of problems from shortage of workers in supply chains and disputes with the EU over Northern Ireland.
Shortages of workers after Brexit and the COVID - 19 pandemic have sown disarray in some sectors of the economy, leaving more than 100,000 pigs facing a culling due to lack of abattoir workers.
Brexit minister David Frost has proposed to permanently replace the Northern Ireland Protocol, a part of the Brexit divorce deal, and the government will make a decision by the end of next month, British newspapers reported.
Ministers are also due to make a decision at the end of next month on whether to unilaterally suspend Northern Ireland's Brexit deal, The Times reported.
GBP was volatile - caught behind a surprisingly lingering Bank of England and the volatile Brexit crises - particularly over the sea border with Northern Ireland, said ING analysts Francesco Pesole and Chris Turner in a morning note.
Why is the UK accepting Frost's proposals on northern Ireland, saying that "we cannot wait or wait for ever"? Without an agreed solution soon, we will need to act, using the Article 16 safeguard mechanism, to address the impact the protocol is having on Northern Ireland. Against the Euro, sterling stood unchanged at 85.61 pence per euro.
Largely a consolidation of the last week's sell-off, with the return of broader risk appetite helping lift risky currencies like the pound, said Viraj Patel, FX and global macro strategist at Vanda Research.
We wouldn t read too much into the latest May announcement from the Chancellor - extra job support and there are still a myriad of headwinds, Patel added, noting that supply disruptions and Brexit are material headwinds to consumer confidence in the fourth quarter.