Sterling hits highest level against euro since March 2020

By Joice Alves

LONDON (Reuters) - Sterling edged higher against both the euro and the dollar on Thursday, reaching its highest in almost a year against the single currency, amid expectations of a faster economic recovery in Britain thanks to its successful COVID-19 vaccinations.

The pound was 0.3% higher against the euro to 86.61 pence at 1542 GMT, not far from its highest since March 5, 2020 of 86.42 pence touched earlier.

The British currency has risen more than 2% against the euro in February as the aggressive rollout of the COVID-19 vaccination programme in the United Kingdom raised expectations its economy will recover faster than that of its European peers.

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Versus the dollar, sterling climbed this week above $1.39 for the first time since April 2018. It was 0.6% higher on Thursday at $1.3946.

Britain reported this week that it has vaccinated 15.6 million people with a first dose against COVID-19 so far, the fastest rollout per capita of any large country.

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Neil Jones, head of FX sales at Mizuho Bank, said sterling is benefiting from the fact that the currency market is already looking at a "post-COVID world".

"The pound is benefiting from its vaccine currency status. Expectations for a more rapid economic recovery are kicking into play".

Prime Minister Boris Johnson is planning a staged exit from the country's third national lockdown, which began on Jan. 5, with the battered economy returning to work over the next five months.

Adding to the upbeat mood, the European Union said it foresees "stable and balanced" relations with Britain's financial sector once some ground rules for cooperation are agreed next month.

Amid the improved outlook for the economy, sterling has proved to be the most resilient G10 currency versus the greenback, ING strategists said.

"It is a matter of time when GBP/USD breaks above the 1.40 level," they told clients in a note.

Tempering the optimism, Bank of England policymaker Michael Saunders said on Thursday that negative interest rates may soon be the best tool for the central bank, and raised the prospect of unemployment taking a long time to return to pre-pandemic levels.

(Editing by Larry King and Gareth Jones)