UPDATE 1-Sterling drops as COVID ‘pingemia’ rebounds in July

* Chart: world exchange rates in 2020 tmsnrt.rs/2egbfVh

* Chart: Trade-weighted pound sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Updates with PMI data, details)

LONDON, July 23 (Reuters) – The pound fell on Friday after an investigation showed Britain’s economic rebound slowing sharply in July when a spike in COVID-19 cases forced hundreds of thousands of workers to s ‘isolate under government rules.

Friday’s Monthly Purchasing Managers Index (PMI) data provided the first clear evidence of the scale of the impact.

The IHS Markit / CIPS flash composite PMI fell to 57.7 in July from 62.2 in June. A reading above 50 indicates growth in the economy, but the reading was the lowest since March and a steeper drop than most economists had predicted in a Reuters poll.

As of 11:00 GMT, the pound was down 0.2% against the dollar at $ 1.3738, and down by a similar magnitude against the euro at 85.63 pence per euro.

Still, the pound has proven relatively resilient this week to a massive selloff in many currencies – it is now almost stable against the dollar – amid concerns about the spread of the Delta variant of the coronavirus.

The government said on Thursday that daily tests would be rolled out to allow staff in key areas to continue working instead of having to automatically self-isolate after exposure to someone who tested positive for COVID-19 – a system that caused enormous disruption.

Official data on Friday showed UK retail sales resuming their recovery after the lockdown in June after a surprise drop in May. Retail sales rose 0.5% in June from May – a Reuters poll of economists had indicated a 0.4% month-on-month increase in retail sales volumes in June.

MUFG analyst Derek Halpenny said sterling remained positive but appetite for short-term purchases was limited as investors wait to see if there has been a decisive break in the link between the increase in COVID-19 cases and hospitalizations thanks to the rapid deployment of the vaccine in Britain.

“We remain bullish on the British pound for the medium term, but this view incorporates assumptions such as declining COVID risks and resolving the NI (Northern Ireland) protocol issue,” he said, referring to the UK-EU post-Brexit dispute. trade agreements for Northern Ireland.

Sterling had been a standout performer in 2021 thanks to Britain’s relatively rapid vaccine rollout, which accelerated the pace of the reopening, but in recent weeks he has lost some of those gains.

At $ 1.37, it rose only 0.6% for the year against the dollar, and three-year highs above $ 1.42 were hit in February. (Reporting by Tommy Wilkes; editing by Philippa Fletcher and Louise Heavens)