Sterling hits highest vs. dollar since April 2018

By Ritvik Carvalho

LONDON (Reuters) – Sterling hit its highest level against the dollar since April 2018 and traded just below eight-month highs against the euro on Tuesday, with analysts citing Britain’s lead in COVID-19 vaccinations as a positive for the currency.

The pound hit $1.3788 against the dollar in early London deals, its highest level against the greenback since Apr. 30, 2018. Against the euro, it traded down 0.15% at 87.80 pence by 0902 GMT.

Analysts have largely been constructive on the pound – particularly against the euro – this year, noting that Britain’s COVID-19 vaccine rollout has been swifter in comparison to Europe.

Graphic: COVID-19 vaccinations – https://fingfx.thomsonreuters.com/gfx/mkt/azgpoemmzpd/Pasted%20image%201612862185889.png

Helping the pound broadly has also been the Bank of England, which at its meeting last week pushed back at market expectations of negative interest rates. Money markets do not reflect negative rates from the Bank at least as far out as August 2022.

“As we have been arguing since last week’s Bank of England meeting, the move lower in seems to have taken a breather, something we expect will continue near-term,” said Kristoffer Kjær Lomholt, Chief Analyst, FX and Rates Strategy at Danske Bank, having noted that last week euro-sterling breached key technical levels in the wake of the Bank’s meeting.

“We still like being short EUR/GBP, as we expect the UK economy to outperform supported by much faster vaccinations.”

ING said in a note that “a bearish bias” on the euro-sterling pair is “still warranted”, given the difference in the pace of vaccinations between Britain and Europe.

Britain is looking at greater testing of all people who have arrived from abroad while they are self-isolating to defend against new variants of the virus that causes COVID-19, a minister said on Tuesday.

Speculators increased their net long positions on the pound – bets that it will strengthen – in the week up to February 2, CFTC data showed on Friday. [IMM/FX] [CFTC/]