LONDON (Reuters) – The new three-year high pound hit $ 1.4050 in early trading in London on Monday, before standing around the $ 1.40 level, while bullish investors pledged on vaccine spreads the UK brings economic recovery.
Sterling rose to its highest levels since April 2018 when it surpassed $ 1.40 on Friday, after rising 2.4% so far in 2021.
Analysts attributed the recent strengthening to the UK’s relative success in delivering COVID-19 vaccines, which are expected to help the British economy recover from the biggest downturn in 300 years.
Relief that an unconditional Brexit was avoided at the end of 2020 also supports the pound, as well as reducing fears that the Bank of England could introduce negative interest rates.
Speculators added to their long net position for the third week in a week to February 16, CFTC position data showed. The market is at its highest level in one year.
At 0839 GMT, the pound was at $ 1.3992, down 0.1% on the day. Against the euro, it rose around 0.2% at 86.42 pence per euro, after touching on a year-high high earlier in the session EURGBP = D3>.
“The upward trend in cable this year is largely driven by pound strength rather than U.S. dollar weakness,” MUFG money analyst Lee Hardman wrote in a note to clients.
“If the high levels from April 2018 are lifted it will boost expectations that the pound is changing to a higher balance now that Brexit risks have eased,” he said. “However, if these high levels remain in place, market participants may begin to question whether recent pound strength has been exceeded and thus increases the risk of a lower correction.”
British Prime Minister Boris Johnson will unveil a plan on Monday to release the UK from its third national closure.
Some 17.6 million people, more than a quarter of the population of 67 million, have now received their first dose of COVID-19 vaccine. The UK is just behind Israel and the United Arab Emirates in vaccines per capita.
Yields on British government bonds jumped on Monday, boosted by expectations of a heavy US fiscal stimulus and the UK economy reopening.
“Markets are still going to change the Bank of England is unlikely to apply negative rates for now, leading to a narrowing of the 10-year UK yield gap,” he wrote. UBS strategists in a note to clients. (Graphic: CFTC,)
Reporting by Elizabeth Howcroft; Edited by Bernadette Baum