Sterling hits week low as dollar strength, political risk weigh

LONDON (Reuters) -Sterling fell to its lowest level in a week against the dollar on Tuesday as a jump in U.S. Treasury yields boosted the greenback and speculation about the fate of Boris Johnson’s premiership also weighed on the British currency.

The prime minister denied an accusation by a former adviser that he had lied to parliament about a lockdown party but it was unclear whether he would survive the scandal politically.

Traders had seemed happy to ignore the turmoil, but its seriousness is starting to weigh on the pound, CIBC strategist Jeremy Stretch said.

While it is unclear how a change of prime minister would impact the pound in the long run, the immediate uncertainty is clearly a negative, he said.

“The first reaction from investors from outside the local market is ‘sell first and ask questions later’,” Stretch said.

Early morning data showing British employers added a record number of staff in December failed to prop up sterling.

The 184,000 employees added to British payrolls may vindicate traders who priced in another Bank of England interest rate hike in February, but pay’s weakest performance since July 2020 might also reassure those hoping for more dovish policies.

In December, the BoE became the first major central bank to raise interest rates since the pandemic took hold in 2020. In response, the pound rallied over 4% from its December lows, but has lost ground in the last three sessions.

“Expectations have already run quite far,” wrote Commerzbank analyst You-Na Park-Heger.

She added that investors would be seeking monetary policy clues from BoE governor Andrew Bailey speaking to the Treasury Select Committee on Wednesday, when inflation data is also due.

GDP data on Friday showed the economy was bigger than before the first COVID-19 lockdown.

At 1552 GMT, the pound was down 0.44% against the dollar at $1.3584. It hit a late-October high of $1.3749 last week.

The pound’s weakness against the greenback comes as higher U.S. Treasury yields pushed the dollar index to a six-day peak.

Against the euro, sterling was slightly up, rising 0.04% against the euro at 83.52 cents.

(Reporting by Julien Ponthus, editing by Ed Osmond and Barbara Lewis)