Investors keep away from UK sterling in uncertain times

The pound was down 0.1% against the dollar on Friday

Sterling is expected to gain towards the end of the year if Britain and the European Union manage to negotiate a deal over future trade relations. Bloomberg

Sterling traded slightly lower versus the US dollar and was unmoved against the euro on Friday, with investors mostly staying on the sidelines.

So far, little has been achieved in the negotiations between Britain and the European Union on a trade deal following Britain's departure from the bloc.

This leaves sterling traders unsure how to approach the pound.

Stephen Gallo, currency analyst at BMO Capital Markets, said the pound will weaken given that other countries have an advantage over Britain for being exporting countries.

"The UK’s trade policies will be in flux beyond 2020. What 2020 will do is create a starting point for UK/EU-27 trade adjustments going forward," said Mr Gallo, adding that "regulatory alignment, dispute arbitration and trade friction are likely to crop up as issues over the medium-term".

The pound was flat at 89.61 pence versus the euro and down 0.1 per cent against the dollar at $1.25.

The trade-weighted pound has never recovered to its pre-Brexit referendum levels.

Britain is also facing challenges to reviving its economy, badly hit by the coronavirus.

Though British shoppers returned to the high street in June as a lockdown eased, overall numbers were much lower than normal for the time of year, an industry survey showed on Friday.

Stress in financial markets could yet make a comeback, Britain's finance industry said last month.