The pound edged lower on Tuesday after touching a fresh three-year high versus the dollar amid expectations for a recovery in the British economy following a successful vaccination programme, while a surge in house prices also lent support.
Sterling hit its highest level since April 2018 of $1.4250 during the Asian session against the dollar, with analysts attributing it to positive global investor sentiment towards the UK economic recovery.
Well into the London session after a long weekend, sterling reversed its course to edge 0.2% lower at $1.4183 versus the dollar at 0848 GMT. It was down 0.16% against the euro at 86.20 pence..
“Overseas investor sentiment generally is positive towards sterling given the vaccine roll-out and the reopening of the domestic economy. The stage is set for the pound to push higher I would suggest,” said Neil Jones, head of FX Sales at Mizuho Bank.
He said house price data, which surprised in the upside, also helped to keep optimism around the British currency.
British house prices jumped by an annual 10.9%, the most in nearly seven years, and look set to accelerate further as people seek new homes after the pandemic, mortgage lender Nationwide said.
Economic indicators including retail sales, surveys of purchasing managers and employment measures are looking up as Britain started the third stage of its reopening in May, allowing indoor dining in pubs and restaurants.
A deluge of new orders helped to drive a record increase in British manufacturing activity last month as the economy began to recover from the COVID-19 pandemic, a survey showed.
Sterling also found support last week in the comments from Bank of England 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.
Sterling is one of the best performing G10 currencies versus the dollar this year, up almost 4% year-to-date.