LONDON, Aug 3 - Sterling rose in early London trading on Tuesday, helped by recent falls in COVID - 19 infections in Britain and optimism around Britain's gradual removal of lockdown restrictions.
After all lockdown measures in England were dropped in July, the pound rebounded at the end of the month, reaching as high as $1.39835. Since then it has most assuredly stayed above $1.39.
The UK was up 0.2% against the USD at 0801 GMT on Tuesday, at $1.39125 against the dollar. Also, it was 0.2% stronger than the Euro, for 0.85365.
Lee Hardman, a currency analyst at MUFG, said that the rebound in the pound reflects optimism that the pandemic could be over by the autumn.
If cases continue to rise less than feared, it will reinforce confidence that restrictions are unlikely to be tightened significantly again allowing the UK economy to continue rebounding strongly during the 2 H 2021.
Britain reported 21,952 further cases of COVID on Monday according to official figures and an additional 24 deaths within 28 days of a positive test.
In a quiet day for economic data, investors are looking ahead to the Bank of England meeting on Wednesday.
The central bank is expected to keep on its nearly 900 billion pound bond buying program, although two policymakers have broken ranks to suggest that the time for tighter monetary policy might be approaching.
The BoE is expected to be among the first of the world's biggest central banks to begin the process of demonetizing stimulus support.
I am more confident with the outlook for GBP. While there is a risk that the BoE will disappoint temporary expectations this week, any GBP weakness should be temporary, MUFG's Lee Hardman said.
Currency analysts at ING wrote to clients in a note that Euro-sterling could last around 0.8550 before Bank of England meeting.
Some positive news on the contagion side and expectations that the UK government will allow a broad re-open of borders in Thursday's travel restrictions review are marginally improving the recovery story, but the impact on asset prices is not tangible for now, ING said.
Consumer price inflation in the UK will rise early next year - almost double the target of the Bank of England but should fall back to 2% the year after if the BoE begins raising interest rates, a leading think tank forecast on Monday.