By Joice Alves
LONDON (Reuters) - Sterling strengthened on Monday against the euro which was knocked by a slump in German business sentiment in January, while Britain's COVID-19 vaccine rollout over the weekend offered support to the British currency.
Sterling had fallen in the previous session as a set of figures showed Britain's third national lockdown prompted the sharpest drop in business activity since May, while retail sales remained weak in December.
But against a weakening euro, sterling edged 0.3% higher to 88.75 pence at 1600 GMT, not far from an 8-month high of 88.30 pence hit last week, after an Ifo economic institute survey showed German business morale slumped to a six-month low in January.
"The euro is under a bit of downward pressure after the weaker than expected Ifo," said Adrian Schmidt, head of FX strategy at Continuum Economics, adding that in the longer run, "the relative weakness of Europe seems likely to drag GBP lower".
Britain's vaccine rollout gathered pace on Saturday, as the number of people with their first dose reached 5.9 million.
"Investors may start to sense we are turning the corner," said Neil Jones, head of FX sales at Mizuho Bank.
Data showed on Monday that the number of shoppers heading out to retail destinations across Britain rose by 9% last week from the previous week, indicating signs of "lockdown fatigue" as the COVID-19 death toll rose to 97,939 on Jan. 24.
Versus the greenback, after hitting a 32-month high last week, sterling was volatile on Monday. It returned to gains, as investors prefered risk assets on hopes for more stimulus in the United States, but then lost some ground.
The pound was last 0.2% lower at $1.3657 against the safe-haven dollar, after hitting $1.3724 in morning trade, recovering from a slide to $1.3636 the previous session.
Graphic: Sterling Jan 25, https://fingfx.thomsonreuters.com/gfx/mkt/azgvolzmopd/Sterling%20Jan%2025.png
(Editing by Kirsten Donovan; Nick Macfie and Andrew Heavens)