LONDON: Sterling hit over a week’s high against the dollar on Tuesday and a 12-day high against the euro, with analysts pointing to recent dollar consolidation and Britain’s reopening plans for July 19 as reasons for the currency’s buoyancy. Against the dollar, sterling reached $1.3798 in early deals in London, its highest since June 28. Against the euro, it hit its highest since June 24, at 85.50 pence.
British Prime Minister Boris Johnson set out plans on Monday to end social and economic Covid-19 restrictions in England in two weeks’ time, a test of whether a rapid vaccine rollout offers enough protection from the highly contagious Delta variant. Johnson confirmed the government aimed to end restrictive measures on July 19, with a final decision to be taken next week. He said the step would eliminate formal limits on social contact, the instruction to work from home, and mandates to wear face masks.
“GBP is enjoying some outperformance. This may be linked to Prime Minister Boris Johnson’s speech last night about fully reopening the economy and learning to live with Covid-19,” ING strategists said in a note. “Yet this link looks very fragile and even the Bank of England would admit that the final stage of reopening the economy will have little impact on economic activity.” By afternoon trade, a broad move lower in the euro pushed sterling down 0.2% by 1422 GMT, last trading at $1.3818. Against the euro, it last traded flat at 85.66 pence.
Sterling has been among the top performing G10 currencies this year on account of Britain’s quick vaccination rollout, which analysts say has led to a quicker reopening of its economy. However, in recent weeks those gains have evaporated as other countries catch up and as the Federal Reserve hinted an earlier than expected end to easy monetary policy, giving the dollar a boost.
Another reason for the recent leg lower in the pound has been the Bank of England, with governor Andrew Bailey warning against an overreaction to inflation in Britain. “At this stage, we would say that sterling lacks the momentum to break through a key support level in euro-sterling at 85.30 pence or push above resistance at $1.3930-40 in cable,” ING said.