ECONOMY
Sterling dips as COVID caution creeps in

LONDON (Reuters) – Sterling fell on Friday despite better-than-expected retail sales data as investors weighed up the risk of a further rise in COVID-19 cases and the impact of self-isolation on Britain’s food and travel industries.

Still, the pound has proven relatively resilient this week to a broader selloff in many currencies — it is now nearly flat against the dollar — on the back of concerns about the spread of the Delta variant of the coronavirus.

Official data on Friday showed British retail sales resuming their post-lockdown recovery in June after a surprise fall in May. Retail sales rose by 0.5% in June from May — a Reuters poll of economists had pointed to a 0.4% month-on-month increase in retail sales volumes in June.

The government said on Thursday daily testing would be rolled out to allow staff in key sectors to keep working instead of having to self-isolate automatically after exposure to someone who had tested positive for COVID-19 – a system that has caused huge disruption.

By 0750 GMT, the pound was 0.2% lower versus the dollar at $1.3737, and down my a similar magnitude against the euro at 85.71 pence per euro.

MUFG analyst Derek Halpenny said he remained positive on sterling but that appetite for short-term buying was limited as investors wait to see whether there has been a decisive break in the link between rising COVID-19 cases and hospitalisations thanks to Britain’s rapid vaccine rollout.

“We remain GBP bullish over the medium-term but that view incorporates assumptions like COVID risks receding and the NI (Northern Ireland) protocol issue being resolved,” he said, referring to the dispute between the United Kingdom and the EU over post-Brexit trading arrangements for Northern Ireland.

Sterling had been a standout performer in 2021 thanks to Britain’s relatively fast rollout of vaccines, which has accelerated the pace of reopening, but in recent weeks it has lost some of those gains.

At $1.37 it remains up just 0.6% for the year versus the dollar and off three-year highs of above $1.42 touched in February.

(Reporting by Tommy Wilkes; editing by Philippa Fletcher)

Source: Reuters.com

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