Sterling slips on COVID-19 worries as England set to lift restrictions

By Joice Alves

LONDON (Reuters) - Sterling nudged lower on Monday with British Prime Minister Boris Johnson expected to confirm plans to remove nearly all remaining COVID-19 restrictions in England from July 19, despite a surge in cases to levels unseen for months.

Sterling fell 0.1% to $1.3892 against the dollar by 1450 GMT, after jumping overnight to its highest in two weeks. Versus the single currency, it was flat at 85.43 pence.

Johnson will announce his final decision to ease lockdown measures at a news conference on Monday. He is expected to eliminate rules on mask-wearing and social contact, and the instruction to work from home.

Commerzbank analysts recalled that Johnson's move last year not to impose lockdowns turned out to be unsustainable.

"The later the lockdowns are imposed, the stricter and probably longer they are," said Ulrich Leuchtmann, head of FX research at Commerzbank.

"If that were to happen, the market's optimism that the Bank of England might dare a lift-off, i.e. the first rate hike, might be shattered somewhat," he added.

The government argues that even though cases have surged, deaths and hospitalisations remain under control.

Sterling has been among the top performing G10 currencies this year following Britain's quick vaccination rollout, which encouraged hopes for a quick economic recovery.

More than 87% of adults have received at least one dose of a COVID-19 vaccine in Britain and 66% have received two.

But investor confidence has been hit by a surge in COVID-19 Delta variant cases, which added to weaker-than-expected economic data in England.

Data showed last week that Britain's post-lockdown economic rebound slowed sharply in May with gross domestic product growing by 0.8% from April, much weaker than the median forecast of 1.5% in a Reuters poll of economists.

"GBP bulls are finding it difficult to find motivation," said Jane Foley, head of FX strategy at Rabobank.

(Reporting by Joice Alves; Editing by Peter Graff and Kirsten Donovan)