Sterling sidelined as dollar softens, euro plays catch-up

LONDON: Britain's pound edged down against the dollar and the euro on Tuesday, as a lack of positive drivers for the British currency put the focus elsewhere for currency traders.

The pound's performance this year has been second only to the commodity-driven Canadian dollar among G10 currencies, buoyed by Britain's fast rollout of vaccines that sparked hopes of its economy reopening.

The British currency's rise against the dollar has also been supported by investor concerns that rising inflation in the United States could prompt interest rate increases.

But sterling ebbed down 0.2% to $1.4126 against the dollar by 1338 GMT, despite the dollar plumbing lows against other currencies as insistence from the US Federal Reserve that policy would stay pat calmed fears about inflation forcing rates higher.

Traders said a lack of fresh economic data or other strong drivers meant the pound could not for now continue its recent march back to its high for the year of $1.4240, a level last reached in February.

British policymakers on Monday adopted a relaxed tone about inflation, helping the pound to hold recent gains and setting expectations of a similar tone from the central bank's interest rate-setter Silvana Tenreyro who speaks at 1600 GMT.

Bank of England Governor Andrew Bailey said on Monday he did not see long-term implications from an expected pick-up in inflation.

Positive economic news from Germany and broader optimism about easing lockdown restrictions on the continent helped the European currency catch up with the pound, which has been boosted in recent weeks by Britain's fast vaccination drive.

The euro was up 0.48% against the pound by 1338 GMT, as German business morale hit a two year high.

"What had been a unique differentiator for sterling in recent months is now less so," said Ned Rumpeltin, Head of European Currency Strategy at TD Securities.

"This is the euro's opportunity to catch up to things we have seen elsewhere in terms of restrictions easing and vaccines rolling out, and the positive economic data from Germany helps."