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Sterling recovers lost ground, bolstered by global market recovery

22 Jul 2021

The pound is gaining ground helped by improving global markets and a slowdown in the acceleration of new coronavirus cases in the UK.

That said, possible renewed Brexit pressures could impact sentiment towards the pound.

Sterling recovered 1.16 against the euro and 1.37 against the dollar due to an enhanced global investor backdrop, Pound Sterling Live reports, and amid indications Britain’s third wave of coronavirus cases is starting to peak.

According to short-term economic data, there has been an easing in the economic rebound as consumer spending growth relaxes.

This is only likely to improve when the trend in Covid cases reverses.

In addition, global investor sentiment improved, which according to analysts is positive for the pound against the euro and dollar.

On Wednesday, the FTSE 100 registered its strongest daily gain in five months as investor concerns over the spread of the Delta variant of coronavirus eased.

The pound-to-euro exchange rate rose to a high of 1.1610 thanks to the boost to investor sentiment, having dipped to 1.1530 the day before.

Moreover, the pound-to-dollar rate reached a high of 1.3696, after dropping to 1.3571 the previous day.

"The apparently sudden explosion of Covid-19 Delta variant risk to the status of ‘top concern’ for global markets is this week’s key story," stated Shahab Jalinoos, a foreign exchange trading strategist at Credit Suisse.

"It is still possible that the high rates of Covid-19 infection do not translate into hospitalisation rates that force a reversal of economic re-opening," he added.

Furthermore, darkening the outlook for the pound are signs of more Brexit pressures, focused on Northern Ireland. 

On Wednesday, Britain announced it wanted a considerable renegotiation of several points in the Northern Ireland protocol, as the current form impeded the trade of goods and medicines between the UK and Northern Ireland.

Mark McCormick, Global Head of FX Strategy at TD Securities commented: "Sterling is in focus today as Brexit concerns are starting to make a comeback.

With the pound already on its back foot, we think the UK government’s plans to revisit the Northern Ireland protocol could add to sterling’s negative near-term backdrop.”