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Sterling steadies above $1.37; speculators' net long position increases

Elizabeth Howcroft
·2-min read
A pile of one pound coins is seen in a photo illustration

By Elizabeth Howcroft

LONDON (Reuters) - The pound had a quiet start to the week, overall flat on the day against the dollar and euro, but analysts remained bullish on its outlook and the latest positioning data showed the speculative long position on the British currency had increased.

The pound has strengthened against both the dollar and euro in February, boosted by heightened risk appetite in global markets, optimism surrounding the UK's COVID-19 vaccine rollout and a lessening of negative rates expectations.

Britain has injected over 12 million first doses of COVID-19 vaccines and is on track to meet a target to vaccinate everyone in the most vulnerable groups by mid-February.

"Sterling is benefiting mostly from the vaccine race – it’s really the main differentiator," said Ned Rumpeltin, head of European currency strategy at TD Securities.

"It’s kind of run out of steam here, just below $1.37," he said, noting that the pound has struggled to break above that level since 2018.

Although the pound fell somewhat during European trading hours, it then recovered these losses and was down less than 0.1% against the dollar at $1.3729 at 1638 GMT.

Versus the euro, it was up less than 0.1%, at 87.66 pence per euro.

The Bank of England reported the findings of its consultation with banks about the feasibility of implementing negative rates last week.

Banks told the BoE that they would need at least six months to work out how to respond to negative rates - prompting the pound to rise as investors scaled back any expectations of the policy being introduced.

Negative rates are "unlikely to happen over the next 6 months due to operational risks, while the need to go negative after the 6-month period will be rather low as we expect a strong 2Q economic recovery", ING FX strategists Francesco Pesole and Petr Krpata wrote in a note to clients.

"Coupled with the fast vaccination, GBP is set to benefit and GBP/USD to grind slowly higher next week," they said. They expect cable to move towards $1.50 by the end of the year.

Speculators' net long position on the pound grew in the week to Feb. 2, according to weekly CFTC futures data. The market has been net bullish on the pound since early December 2020, with the UK's relative success in vaccine rollouts helping to improve sentiment.

Britain, along with France, Germany and Australia, voiced support for the AstraZeneca COVID-19 vaccination on Monday after South Africa halted its roll-out when research showed it offered minimal protection against mild infection from a variant spreading there.

(Graphic: CFTC - https://fingfx.thomsonreuters.com/gfx/mkt/qzjpqgqeypx/CFTC.png

(Reporting by Elizabeth Howcroft; editing by Ed Osmond, Larry King and Mark Heinrich)