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By Tom Wilson
LONDON (Reuters) - The pound edged towards $1.40 on Thursday, making slim gains as the dollar weakened and investors remained focused on hopes that Britain's relatively successful COVID-19 vaccine programme would support its economic recovery.
Sterling climbed as high as $1.3977, its highest in a week, with analysts citing a falling dollar as the chief driver. It was last up 0.2% at $1.3955.
The dollar fell to its lowest in a week versus a basket of currencies after benign data on U.S. consumer prices and a decline in Treasury yields led some investors to trim bets on a rapid acceleration in inflation.
It later trimmed losses and was last down 0.1%.
Against the euro, the pound recovered earlier losses after the European Central Bank said it was ready to accelerate money-printing to keep a lid on euro zone borrowing costs, signalling to sceptical markets it was determined to lay the foundation for a solid economic recovery.
The euro gave up some of its gains from earlier in the session against the dollar. Versus the pound, it was last down 0.1% at 85.61 pence.
The pound has been among the best-performing major currencies so far this year, reaching $1.424 in February. Still, the pound has slipped around 2.5% since its Feb. 24 high.
Among the drivers of the gains have been the UK's progress on COVID-19 vaccinations and plans to loosen lockdown measures, analysts said, as well as dwindling expectations that the Bank of England would push interest rates below zero.
"The prospects or risks of negative rates have been fully removed - that's important as well," said Derek Halpenny, EMEA head of research for global markets at MUFG.
Relief a no-deal Brexit was avoided at the end of 2020 may help investors return to the UK and lend further support to the pound, he added.
(Reporting by Tom Wilson, editing by Larry King and Sonya Hepinstall)