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Europe, Forex

Sterling in limbo with markets bearish on dollar, bullish on euro

* Graphic: World FX rates in 2020

* Graphic: Trade-weighted sterling since Brexit vote (Updates news and rates)

By Joice Alves

LONDON, Aug 10 (Reuters) – Sterling gained against a slightly stronger dollar on Monday after failing to hold onto last week’s five-month high of $1.3185, with traders expecting further swings.

The pound was up 0.3% to $1.3087 at 1518 GMT after earlier falling 0.2% to $1.3020, with investors focused on fiscal stimulus in the United States.

Sterling gained 0.4% at 89.89 pence per euro.

“The market is bearish dollar, bullish euro, but in terms of sterling the market doesn’t have a strong view,” Athanasios Vamvakidis, global head G10 FX strategy at Bank of America Merrill Lynch, said.

UK unemployment and GDP data due this week could produce some short-term volatility, analysts said.

Sterling “could remain without a clear direction and relatively volatile” even if economic data surprises in line with what happened in the rest of the world with the easing of lockdown measures, Vamvakidis added.

ING analysts said it is not the case of being too optimistic on sterling as consensus expects a rise in the June unemployment rate from 3.9% to 4.2%.

“Speculators are still short GBP and while a short squeeze is still possible, we prefer not to chase the story of upside surprises in UK activity nor a stronger GBP.”

Speculators’ net short position on the pound got smaller in the week to August 4, weekly CFTC positioning data showed .

With the economic impact of the coronavirus crisis and “very difficult” negotiations ahead to strike a Brexit trade deal before a transition period ends in December, Vamvakidis said he expects the BoE to cut interest rates to zero.

“The outlook for risk assets will be more challenging and sterling compared to the other major currencies tends to weaken very soon,” he added.

Data from BoE released on Monday showed that the average daily turnover for dollar-sterling and euro-sterling declined more than 30% in the six months to April 2020 compared to the previous survey.

(Reporting by Joice Alves; Editing by Gareth Jones)

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