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Markets

Pound drops on anxiety over impending end to UK COVID curbs

  • Versus the euro too it slipped 0.3% at 85.6 pence, edging off 3-1/2-month highs touched on Wednesday.
Updated 15 Jul 2021

LONDON: Sterling retreated further against the dollar and euro on Thursday, shrugging off another set of stronger economic data and focusing on the impending end of activity curbs even as COVID-19 infection rates climbed.

Markets globally were in an uncertain mood as robust economic data and company earnings on one hand are offset by rising virus caseloads, especially across Asia.

Britain is set to drop all COVID-linked activity curbs from next Monday, including mandatory mask-wearing. While two-thirds of British adults are fully vaccinated, scientists warn another wave of infections, especially from the more transmissible Delta variant, is inevitable when restrictions end.

The anxiety seems to be outweighing signs the economy is bouncing back strongly from the lockdowns. Data showed 356,000 jobs were added in June from May and the fastest headline wage growth in the year to May since records began in 2000 .

Sterling climbs against dollar

The figures come after data on Wednesday showed inflation at 2.5% in the 12 months to June, surging above the central bank's target. Markets now price the Bank of England to raise interest rates to 0.25% by August 2022.

But by 0835, sterling eased 0.3% against the dollar at $1.382, retreating further from two-week highs hit at the start of the week. Versus the euro too it slipped 0.3% at 85.6 pence, edging off 3-1/2-month highs touched on Wednesday.

"Sterling feels like it's pricing in that the economy is reopening too early," said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.

He said markets were also pressured by signs of disagreement between the central government on one hand and regional and transport authorities on the other, with the latter group keen to still maintain some restrictions.

"A few months back it looked like the UK was way ahead in term of vaccinations but what the market was not anticipoting was the rise in the Delta variant," Onuekwusi added.

There are concerns too about the end of job subsidies which supported 2.4 million jobs at the end of May but are being phased out by end-September and will likely boost unemployment again.

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