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Pound hits fresh three-week high versus euro

Ritvik Carvalho
·2-min read
FILE PHOTO: British Pound Sterling banknotes are seen at the Money Service Austria company's headquarters in Vienna, Austria

By Ritvik Carvalho

LONDON (Reuters) - Sterling rose to a fresh three-week high against the euro on Thursday as pushed-back expectations of negative interest rates and hopes for a quicker economic recovery in Britain due to its vaccination drive buoyed the currency.

The pound has gained against the dollar and euro, 1% and 1.5% respectively this week, after Bank of England Governor Andrew Bailey threw a dampener on market expectations for sub-zero rates in Britain.

Market pricing for negative interest rates has been pushed back by nearly a month, with such rates now expected in June 2021, compared with May 2021 previously.

By 1546 GMT, sterling was 0.3% higher against the dollar at $1.3669, not far off the $1.3701 hit earlier this week.

Against the euro, it rose to its highest level since Dec. 23, up half a percent on the day to 88.70 pence per euro.

"We think there is a good case for a stronger pound with the UK leading the European vaccination race, our forecasts that the Bank of England will not join the negative interest rate club, and when the near-term adjustment problems at the borders to the new EU-UK relationship are over," said Kristoffer Kjær Lomholt, chief analyst, FX and rates strategy, at Danske Bank.

With the uncertainty around a Brexit deal now largely dissipated, analysts are increasingly focused on Britain's economy and its prospects.

COVID-19 infections have continued to surge in Britain, forcing renewed lockdowns.

(Graphic: COVID-19 cases surge in Britain: https://fingfx.thomsonreuters.com/gfx/mkt/xegvbekwopq/Pasted%20image%201610615640435.png)

A boom in Britain's housing market has started to fade, curtailed by new lockdowns and the coming expiry of a temporary tax cut for buyers, a survey found on Thursday.

The Royal Institution of Chartered Surveyors' monthly gauge of new buyer inquiries fell to a seven-month low of +15% in December, from +26% in November.

(Reporting by Ritvik Carvalho; editing by Larry King and Pravin Char)