Sterling gains vs euro after 'sausage war' ceasefire

By Elizabeth Howcroft

LONDON (Reuters) -The British pound edged higher against the euro on Wednesday after the European Union agreed to extend an exemption on customs checks on chilled meat shipments to Northern Ireland that have strained relations.

In a move designed to ease post-Brexit tensions between Britain and the EU, the EU agreed to extent the grace period which was otherwise due to end on July 1 by three months.

Currency analysts say that the post-Brexit dispute between Britain and the EU, dubbed the "sausage row", has had little impact on the pound so far.

After the U.S. Federal Reserve's surprise hawkish shift on June 16, the dollar has broadly strengthened, hurting the pound.

Cable had hit a two-year high of $1.425 at the start of the month, but since the Fed meeting, it has been mostly in the $1.38-$1.40 range.

Sterling also took a hit last week from the Bank of England's monetary policymakers voting to keep their government bond-buying programme at 875 billion pounds ($1.22 trillion).

At 1533 GMT, the pound was down 0.2% on the day at $1.3814, having touched as high as $1.3873 at 1033 GMT. On a wider view, it was on track for its worst month since September.

Against the euro, it was up 0.2% at 85.825 pence per euro.

Euro-sterling implied volatility gauges with one-month maturities were close to their lowest since mid-2019.

"Sterling has had a tough week since the Bank of England meeting last week, and was heavily sold in the last few days though the biggest move was against dollar which had been strengthening across the board itself as we head towards month- / quarter- / half year-end," said John Goldie, FX dealer at Argentex.

But Goldie said that he expects sterling to reclaim the $1.40 level "sooner rather than later" as the two central bank meetings were not enough to justify a continued move lower.

Investors are facing uncertainty over the spread of the Delta variant of COVID-19 in Britain, which this month forced the government to delay a full reopening of the economy.

The UK recorded its highest number COVID-19 cases since Jan. 29 on Wednesday.

But the government has said it now expects to fully reopen pubs, restaurants, nightclubs and other hospitality venues on July 19.

British stocks, bonds and the pound are expected to enjoy more inflows in the coming quarters, BofA said on Wednesday, with the country's net portfolio balance recording a 120-billion-pound inflow in the first quarter, the largest since 2008.

(Reporting by Elizabeth Howcroft; Editing by Kevin Liffey and Jonathan Oatis)