Sterling fell against the dollar to its lowest in almost four weeks after England announced a new national lockdown, but analysts said hopes for a Brexit deal prevented the currency from declining further.
Prime Minister Boris Johnson announced over the weekend that a one-month lockdown across England would start on Thursday. Britain has registered more than 20,000 new coronavirus cases a day and scientists warn the worst-case projection of 80,000 dead might be exceeded this winter.
Senior cabinet minister Michael Gove said the one-month lockdown could be extended, while finance minister Rishi Sunak said he hoped it would be lifted in December.
Britain is working with the European Union to close “significant gaps” in trade talks, Johnson’s spokesman said, as both sides seek to avoid a damaging breakdown in trade when a transition period ends on Dec. 31.
Analysts expect the British economy to contract significantly because of the second lockdown, but by less than the record hit of nearly 20% in the spring.
Caution prevailed on foreign exchange markets in the hours ahead of polls opening in the United States as investors braced for possible post-election disputes that could trigger a burst of volatility for the dollar.
Markets are singularly focused on the election result, but rather than outright bets on a particular outcome many traders have flocked to the safety of dollars so that they are well positioned to take advantage of volatility when results arrive.