© Reuters. FILE PHOTO: British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger/File Photo

LONDON (Reuters) – Sterling briefly dropped below $1.33 for the first time since December 2020 as the British currency found itself caught up in the dumping of riskier assets amid panic over a new COVID-19 variant described as the most concerning yet.

Concerns it might be harder to combat the variant in South Africa with vaccines also prompted investors to scale back their expectations for a Bank of England (BoE) interest rate rise in December, adding to downward pressure on the pound.

Sterling has been falling in recent weeks – in October it traded above $1.38 – sent lower first by disappointment the BoE did not raise rates this month and more recently by worries over slowing economic momentum and growing expectations of tighter monetary policy in the United States, which has boosted the dollar.

After falling to as low as $1.3278, sterling had recovered to $1.3315 by 0845 GMT, down marginally.

Versus the euro, it shed 0.6% to 84.65 pence, its weakest since Nov. 16.

“London is naturally highly exposed to new strains given its high volume of travellers, and markets will be on the lookout in the coming days for any evidence the new variant has already reached UK, with obvious downside risks for the pound,” said ING analysts.

BoE Governor Andrew Bailey said on Thursday central banks took risks when they sought to provide guidance on what is likely to happen with rates – an apparent pushback on his predecessor’s preference for forward guidance.

Bailey was accused by some investors of sending a wrong signal about the likelihood of a BoE rate hike earlier this month.

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