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Pound hits 6-month low against the dollar

Close up of the new UK pound coin released into circulation 30 Mar 2017. In the background is the new ten pound note released into circulation 14 Sep 2017.
The pound dipped to five-month lows against the dollar. Photo: Getty (Alphotographic via Getty Images)

The pound hit a 6-month low against the dollar on Tuesday, following a day of anxiety in financial markets.

By 12.15pm in London, sterling (GBPUSD=X) was trading at $1.3610 against the dollar, marking a six-month low. The pound also dipped to a multi-week low against the euro (GBPEUR=X) to trade at €1.1552.

The pressure was prompted by a strengthening dollar and a backdrop of anxiety about the UK's relaxing of COVID-19 restrictions.

On Monday, nightclubs in England were allowed to open for the first time in more than a year and requirements for mask-wearing and social distancing were relaxed. It came even as new cases of COVID-19 in the UK hit 50,000 a day. A 'pingdemic' of people getting told to self-isolate by the NHS COVID app has also triggered anxiety about mass staff shortages and the resulting economic impact.

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Read more: FTSE and European markets rebound after 'freedom day' selloff

The pound has been on a winning streak over the last six months thanks to the UK's successful well-vaccine rollout programme. But optimism about future prospects has wained in recent weeks.

Sterling took a dive to six-month lows. Chart: Yahoo Finance UK
Sterling took a dive to six-month lows. Chart: Yahoo Finance UK

"The 'vaccine euphoria,' the hopes that the vaccine would end the pandemic and we’d soon be back to normal, is fading," said Marshall Gittler, head of investment research at BDSwiss Holding.

"On the contrary, a return to normal could be much further away than people had thought, especially if the problem continues into the winter when people in the northern hemisphere spend more time inside and the virus has more chances to spread."

Gittler said "safe haven" currencies such as the US dollar, Swiss franc, and Japanese yen were all in demand as investors looked to protect — rather than grow — their wealth. Other currencies, including the pound, were being sold.

Neil Wilson, chief market analyst at Markets.com, said sterling could fall further against the dollar.

"It’s another story of moving averages in FX, with cable dropping below its 200-day line," Wilson said. "It’s not traded under the 100-day and 200-day SMAs [simple moving average] since Jun 2020. Not a heap of support below and a swift move back to 1.350 cannot be ruled out."

Watch: What is inflation and why is it important?