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3 Minutes to Read tmsnrt.rs/2egbfVh* Graphic: Trade-weighted sterling since the Brexit vote tmsnrt.rs/2hwV9Hv (Includes a graphic and a quote, as well as updated rates) (Reuters) – LONDON, July 1 (Reuters) – On Thursday, the pound sank after Bank of England Governor Andrew Bailey advised against overreacting to Britain’s rising inflation. The pound fell to $1.3765 against the dollar in morning trading, its lowest level since April, and was down 0.2 percent at $1.3802 at 1140 GMT (GMT). It lost 0.3 percent to 86.02 pence against the euro after hitting a 16-day low of 86.15 pence. In his annual Mansion House speech, Bailey stated that it was critical to ensure that the recovery was not jeopardized by an early tightening of monetary conditions, as a rise in inflation was only expected to be short. “The absence of evidence for higher rates any time soon has impacted on sterling,” said Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets, adding that it will be fascinating to watch if this holds true in August when official inflation estimates are “significantly revised up.” Last week, sterling was one of the worst-performing G-10 currencies after the Bank of England maintained the scale of its stimulus program and stated that inflation will exceed 3%, but that the rise above its 2% objective would be only temporary. However, analysts said cable was holding up well against a stronger dollar after the Federal Reserve of the United States announced last month that it will raise interest rates and cease its emergency bond-buying program sooner than planned. In a note to clients, analysts at ING said the market was also hesitant to price in a risk premium tied to the rapid spread of the coronavirus Delta strain in the UK. Although daily confirmed cases have been increasing in the United Kingdom for weeks, a quick vaccination program appears to have weakened the relationship between infections and mortality. In the first half of the year, the pound gained about 5% against the euro, with some support this week coming from the European Union’s decision to prolong a three-month exemption on customs checks on chilled meat supplies to Northern Ireland. The post-Brexit disagreement has had minimal influence on sterling so far, according to currency strategists, but that could change as political divergences between Britain and the EU are “still fairly clear,” according to ING. Joice Alves contributed reporting, while Emelia Sithole-Matarise and William Maclean edited the piece./nRead More

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