The pound was little changed on Wednesday as investors weighed the possibility that a COVID variant, first found in India, could delay the final phase of reopening in Britain on June 21.
After touching a fresh three-year high of $1.4250 versus the dollar earlier this week, sterling edged 0.1% lower at $1.4138 versus the dollar at 0810 GMT.
Versus the euro, the pound was 0.1% higher at 86.24 pence.
Sterling is a top-performer G10 currency this year and has benefited from positive global investor sentiment towards the UK following Britain’s speedy vaccination programme.
Britain recorded no new deaths within 28 days of a positive COVID-19 test on Tuesday for the first time since March 2020. The figure comes after a national holiday, a factor which has in the past skewed the data.
But investors have turned more cautious amid fears around the spread of COVID variants in Britain, analysts at ING said in a note to clients.
“Concerns about the spread of the Indian COVID variant and the risks to the 21st June full reopening plans have yet again weighed on GBP,” said Petr Krpata, Chief EMEA FX and IR strategist at ING.
Inflation fears have also resurfaced. British retailers have reported the smallest price falls since the start of the COVID pandemic, partly due to shoppers buying more clothes and shoes as lockdowns eased, and price pressures look set to rise further over the rest of 2021.
Economic indicators including surveys of purchasing managers are looking up as Britain started the third stage of its reopening in May, allowing indoor dining in pubs and restaurants.
Bank of England Deputy Governor Dave Ramsden said the central bank is carefully monitoring Britain’s booming housing market.
Last week, sterling had found support in the comments from BoE policymaker Gertjan Vlieghe.
Vlieghe said the central bank was likely to raise rates only well into next year, while noting an increase could come earlier in 2022 if the economy rebounded more quickly than expected.
(Reporting by Joice Alves; Editing by Christina Fincher)