COVID variant fears and profit taking knock sterling from 3-year high

By Joice Alves

LONDON (Reuters) -The pound edged lower on Tuesday after touching a fresh three-year high versus the dollar as investors took some profit off the table and turned more cautious amid fears around the spread of COVID variants in Britain.

Sterling hit its highest level against the dollar since April 2018 of $1.4250 during the Asian session, 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 0.3% lower at $1.4171 versus the dollar at 1458 GMT. It was down 0.4% against a strengthening euro at 86.40 pence, after one month of gains versus the single currency..

"We saw some profit taking appear this morning as the market looked to monetize the gains made overnight," said Stuart Cole, head macro economist at Equiti Capital.

Cole added that fears that a COVID variant, first found in India, could delay the next phase of the reopening on June 21 also capped sterling's gains.

Inflation fears kept the overnight optimism in check after Bank of England Deputy Governor Dave Ramsden said the central bank is carefully monitoring Britain's booming housing market.

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 and surveys of purchasing managers 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.

Last week, sterling had found support 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.

(Editing by Subhranshu Sahu and Chizu Nomiyama)