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Sterling recovers to hit one-week high vs. dollar

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Ritvik Carvalho
·2-min read
FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna
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By Ritvik Carvalho

LONDON (Reuters) -Sterling hit a one-week high against the dollar on Wednesday, supported by the speed of Britain's vaccine rollout and recovering from a dip the previous day that was triggered by the resignation of the Bank of England's chief economist.

The pound on Tuesday hit a six-week low against the euro and extended losses against the dollar after the announcement of Andrew Haldane's resignation.

Haldane was seen as one of the more hawkish figures at the central bank, and was the most upbeat member of the BoE's Monetary Policy Committee on the prospect of a sharp economic recovery from the COVID-19 pandemic. In February, he likened inflation to a tiger that could easily be roused.

By 1535 GMT, the pound was 0.3% higher on the day at $1.3797, having hit a one-week high of $1.38 against the dollar.

It was 0.1% higher to the euro at 86.77 pence, off a six-week low of 87.11 pence after the Haldane announcement.

"Although a big hawk, his departure shouldn't alter the pound's prospects for the coming months as no imminent BoE tightening was on the table (like for the Fed, it is a story for 2023)," said Petr Krpata, chief EMEA FX and IR strategist at ING.

"The fact that the market pricing of the BoE policy path was largely unchanged yesterday provides a case in point. Plenty of bad news now seems to be priced into GBP (EUR/GBP trades 1.3% overvalued based on our short-term valuation model) and with the UK vaccination programme powering ahead, GBP should recover in coming weeks."

Sterling has been among the best-performing G10 currencies this year, enjoying its best quarter since 2015 against the euro. The pace of Britain's vaccination drive has led analysts to bet on a quicker economic rebound from the country's worst contraction in 300 years.

That trend reversed last week, with sterling suffering a net 2.1% weekly loss against the euro - a move which market participants said was amplified by a squeeze of euro-pound short positions.

"We think that the pound is now poised for some consolidation as UK political risks still loom large, being the difficult setting up of its new relationship with the EU or on the domestic front (NI violence, Scottish elections)," said Alexandre Dolci, G10 FX strategist at BBVA.

"We would pencil a broad 85-88 pence range for EURGBP to settle in in 2Q21."

Speculators' net long position on the pound versus the dollar shrank in the week to April 6, weekly futures data from CFTC showed. The market has been net bullish on the pound since early December 2020, but the latest data put levels of bullishness at their lowest since February.

(Reporting by Ritvik Carvalho; Editing by Giles Elgood and Barbara Lewis)