Sterling reverses course vs euro, on track for weekly gains

By Joice Alves

LONDON (Reuters) - The pound rose against the euro on Friday reversing early losses, and was set for weekly gains against the common currency as traders weighed how the re-opening of Britain's economy would affect its recovery.

After a strong first quarter, helped by a speedy roll-out of COVID-19 vaccinations across Britain and by dwindling expectations of negative interest rates, sterling had a weaker start to April, hurt by profit-taking.

In early London trading, the pound fell versus the euro to 87.18 pence, its lowest level since Feb. 26, but it recovered some ground and was up 0.2% at 86.65 pence at 1600 GMT.

As England re-opened retail stores, hairdressers, gyms and pub gardens on Monday, analysts expect the economy in the United Kingdom to recover faster than in the European Union, which is facing a third wave of infections.

"The UK may not be recovering as fast as the U.S., but it is ahead of the EU. Hence why I think sterling should more easily outperform the euro compared to the dollar going forward," said Stuart Cole, Head macro economist at Equiti Capital in London.

But some analysts said that the premium on sterling versus euro for its faster vaccine roll-out was fading as they forecast other countries would catch up to the UK's pace of inoculation.

Versus a weakening dollar, sterling hit its highest level in nine days - up 0.3% to $1.3824 - and was set for weekly gains, after ending its worst week of the year against the greenback last Friday.

Investors had turned more cautious ahead of the Scottish parliamentary election on May 6.

The Scottish National Party (SNP) is expected to perform well again and has vowed to push for a second referendum on independence from the United Kingdom if it wins a majority in the Scottish parliament.

ING analysts said that investors have been reluctant to jump back into GBP longs ahead of the election, "where appetite for independence will be assessed".

Traders will also be watching UK unemployment, inflation and retail sales figures due next week.

Graphics: Sterling set for weekly gain vs euro - https://fingfx.thomsonreuters.com/gfx/mkt/xlbvgejojvq/EURGBP%20April%2016.png

(Reporting by Joice Alves; Editing by Gareth Jones, William Maclean)