LONDON: Sterling edged higher on Thursday as investors took a fresh look at finance minister Rishi Sunak's plans to revive the economy, but gains for the British currency were limited by looming Brexit risks.
Sunak promised an additional 30 billion pounds ($38 billion) on Wednesday to help the coronavirus-hit economy. He announced bonuses to get furloughed staff back to work, cut value-added tax for the hospitality sector and temporarily scrapped a property tax on purchases of homes costing up to 500,000 pounds.
Investors barely reacted to the news immediately after the announcement, and sterling was steady on Wednesday a day after hitting three-week highs against both the dollar and euro.
But sterling rose 0.3% on Thursday to 89.47 pence against the euro, touching its highest level since June 17.
Versus the dollar, the pound jumped 0.5%, touching $1.2669 in earlier trading, before returning to flat trading at $1.2612 at 1500 GMT.
"There has been a little bit of a delayed response, I think, to the fiscal story here in the UK," said Stephen Gallo, European head of the FX strategy at BMO Financial Group.
Gallo said Sunak's fiscal plan is no game changer and that he expects sterling to remain under pressure over the summer if Britain and the European Union fail to make progress in agreeing their future trading relationship.
"If it weren't for the Brexit factor, which is holding down the pound, I think the pound would be significantly higher now because the UK has a much more dynamic fiscal story than the euro zone as a whole," Gallo said.
British and EU negotiators on Tuesday kicked off a new round of talks. German Chancellor Angela Merkel said she will continue to push to seal a deal by the end of the year, but the EU should prepare for the possibility of a no-deal scenario.