UPDATE 1-Sterling steadies as U.S. infrastructure bill helps risk appetite

Joice Alves
·2 min read

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv (Updates rates)

By Joice Alves

LONDON, Aug 2 (Reuters) - Sterling steadied on Monday versus the dollar, ahead of a Bank of England meeting later in the week, as global risk tone improved on optimism for the U.S. infrastructure bill.

Sterling flattened versus the dollar to $1.3894 by 1539 GMT, after hitting a five-week high of $1.3983 on Friday, closing its best week versus the weakening greenback since early May.

U.S. senators introduced a sweeping $1 trillion bipartisan plan to invest in infrastructure, with some predicting the chamber could pass this week the largest public works legislation in decades.

Prospects of the U.S. bill passing provided support for riskier assets like the pound and stocks, said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.

"Sterling is proving relatively well bid into the start of the week on the back of an improved risk tone ..., helped in part by optimism as regards the U.S. infrastructure bill," he said.

A drop in COVID-19 cases and the reopening of the British economy fuelled a rebound in the pound in July, with the currency re-emerging from its biggest fall in nine months in June.

The BoE's Monetary Policy Committee, which meets on Thursday, is expected to keep its foot firmly pressed on the stimulus pedal. But there is growing discussion about the need to begin tapering its bond-buying programme as the economy recovers.

"The prospect of continued consumer-led growth, allied to a material upgrade in the CPI (inflation) profile, could encourage at least two of eight MPC voters to vote to curtail bond purchases," Stretch said.

Versus the euro, sterling edged 0.16% lower to 85.49 pence, after falling to one-week low in earlier trading. (Reporting by Joice Alves; Editing by Simon Cameron-Moore and Steve Orlofsky)

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