* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Updates prices, adds comment and detail)
By Elizabeth Howcroft
LONDON, June 22 (Reuters) - Sterling fell back below $1.39
on Tuesday as the dollar strengthened, but it was still above
the two-month lows it reached on Monday after the Fed's hawkish
shift.
The U.S. Federal Reserve surprised some market participants
last week by signalling that it would raise interest rates and
end emergency bond-buying sooner than expected - prompting the
dollar to rise and riskier currencies to lose out.
The pound hit a two-month low of $1.37865 early on Monday,
recovered later in the session, then dipped back down again on
Tuesday.
At 1123 GMT, it was down 0.3% at $1.3887. Versus
the euro, it was down 0.1% at 85.64 pence per euro, still
trading within recent ranges.
Michael Hewson, chief market analyst at CMC Markets, said
that he expected the pound to remain driven by the dollar until
the Bank of England meeting on Thursday, where a hawkish tone
could serve as a catalyst for a move higher.
"Where the Fed leads, generally other central banks follow
... Ultimately I think the Bank of England will follow in the
footsteps of the Fed," he said.
Investors are focused the reopening plans, after the full
easing of lockdown was delayed in England by a month due to the
more infectious Delta variant of COVID-19.
Hewson said he remained bullish on the pound over the longer
term, projecting it to head towards $1.45 over the next 6-12
months, because the delay in reopening did not change the fact
that Britain was on the path to economic recovery.
British Health Minister Matt Hancock suggested that
England's lockdown could fully end as planned on July 19 because
a recent rise in cases is not resulting in deaths.
"Although the pandemic is far from over, and potential new
variants that render the current generation of vaccines
ineffective present a serious risk, recent virus and vaccine
developments support our positive economic outlook for the UK
and other advanced economies," Kallum Pickering, senior
economist at Berenberg wrote in a note to clients.
Analysts expect no changes to policy after the BoE last
month said it would slightly slow the weekly pace of its bond
purchases.
British manufacturers expect to raise their prices at the
fastest pace in nearly 40 years, according to a survey which
adds to signs of growing inflation pressures.
The dispute between the European Union and Britain over
post-Brexit trading arrangements in Northern Ireland continued
to have limited impact on the pound.
(Reporting by Elizabeth Howcroft; Editing by Philippa Fletcher
and Alison Williams)