Sterling falls below $1.24 on record public debt

Sterling fell below $1.24 on data-heavy Friday as traders shifted their attention from a bounceback in retail sales to the coronavirus-fuelled surge in UK public debt.

The pound had risen briefly on data showing that retail sales rebounded in May more strongly than hoped after April’s precipitous slump.

That optmism was offset by official data showing that government borrowing hit a record high and public debt had climbed above economic output.

“UK public sector finances for May show how heavy the cost of the pandemic has been in the first two months of the fiscal year,” said Kit Juckes, chief global FX strategist at Societe Generale.

The pound was 0.3% down against the dollar at $1.2388 by 1025 GMT, its lowest since June 1. Against the euro, the pound was last down 0.3% at 90.46 pence.

The euro continued to be under pressure this week on doubts whether bloc leaders will overcome regional divisions over a 750 billion euro ($840.8 billion) coronavirus recovery fund. EU leaders meet to discuss the fund in a teleconference on Friday.

“We still think EUR/GBP is likely to spend most of the next few months above 0.90,” Societe Generale said in a note.

The pound had slumped more than 1% against both the euro and the dollar on Thursday after the Bank of England increased its bond-buying programme by 100 billion pounds ($124 billion) to bolster the coronavirus-hit economy.

The central bank also kept its benchmark interest rate at 0.1% and said it expected a new total of 745 billion pounds in government bond purchases by the end of the year.

Brexit-related risks also continued to weigh on sterling. British Prime Minister Boris Johnson told visiting French President Emmanuel Macron on Thursday that talks on a post-Brexit deal cannot drag on into the autumn.

Britain left the EU on Jan. 31, but talks on future relations have so far made little progress. Both sides say a deal is achievable, but they also say that time is running out and the prospect of a no-deal outcome remains.

On a brighter note, Britain’s chief medical officers said the COVID-19 threat level should be lowered one notch.

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