By Anirban Nag
LONDON (Reuters) – Higher-yielding, riskier currencies such as the Australian dollar rose along with sterling on Tuesday as investors took a breather from a brutal selloff sparked by Britain’s vote to leave the European Union.
Safe-haven currencies such as the yen and the Swiss franc, which had gained sharply since last Thursday’s vote, were weaker, although risk sentiment was fragile.
Ratings agencies Standard & Poor’s and Fitch have downgraded the UK, adding to the currency’s dour outlook.
Investors’ focus was on the first EU summit since the vote, which British Prime Minister David Cameron will attend. But he will be excluded from the second day of talks as the other 27 leaders discuss the fallout from Brexit.
Analysts said the tone from the summit would give an idea of how difficult Britain’s negotiations will be once Article 50 of the EU’s Lisbon treaty, which governs the procedure for a country to leave, is triggered. So far Britain has been in no hurry to do so, lending some support to the pound.
“Markets appear to have settled into the notion that politicians are playing the long game now and it may be some time before Article 50 is triggered, but this remains a fragile truce,” said Ned Rumpeltin, European head of currency strategy at TD Securities.
“Enthusiasm towards the pound remains tepid at best.”
Sterling rose 1 percent to $1.3373, climbing from a 31-year low of $1.3122 struck on Monday. The pound’s two-day slide on Friday and Monday was the biggest in the post-1973 floating exchange rate era and came as UK banks lost a third of their value in two trading sessions.
“Markets may be heading towards consolidation after experiencing sharp losses within the post-Brexit environment,” Morgan Stanley’s head of currency strategy, Hans Redeker, said, noting sterling had fallen to technically significant levels against many other currencies.
“However, with the downgrade (by S&P) the short-term negative news flow may have reached its peak.”
The euro rose to $1.1093, recovering from Friday’s three-month low of $1.0912. The single currency has been under pressure as Brexit clouds the future of the whole bloc.
The Australian dollar, seen by many as a proxy for risk sentiment, rose 1 percent to $0.7407.
The dollar rose against the yen, trading at 102.33 yen. On Friday, it had fallen to 99 yen, its lowest since late 2013, when it became clear that Britons had opted for “Leave”.
(Editing by Mark Trevelyan)