Sterling falls to 6-day low versus euro as EU and UK battle over vaccines

By Elizabeth Howcroft

LONDON (Reuters) -The pound slipped against the dollar on Monday and fell to its lowest in six days against the euro, as investors weighed up the impact of the European Union's threat to impose a ban on vaccine imports to Britain.

The pound has strengthened around 3.6% against the euro this year, in a move which analysts largely attribute to the UK's vaccine rollout - which is one of the fastest in the world.

But the EU's leaders are due to discuss imposing a possible ban on vaccine exports to Britain at a summit on Thursday.

British Prime Minister Boris Johnson spoke on Sunday to the EU's most powerful leaders, German Chancellor Angela Merkel and French President Emmanuel Macron, to steer them away from bans. [nS8N2KU05N][nL9N2JA007]

Johnson also warned on Monday that a third wave of COVID-19 infections sweeping across Europe could be heading towards Britain.

"From a purely market perspective, if Europe does secure greater vaccination doses for its own population, that is going to be positive for euro-dollar and for euro-sterling," said Kenneth Broux, FX strategist at Societe Generale.

At 1558 GMT, the pound was down around 0.1% against the dollar, at $1.385. Versus the euro it was down around 0.3%, at 86.135 pence per euro.

Speculators reduced their net long position on the pound versus the dollar in the week to March 16, CFTC data showed. Although the market is still overall bullish on sterling, the size of the bullish position has shrunk for the past two weeks.

Rabobank said in a note that "there is a lot of good news priced into GBP, making pullbacks more likely".

SocGen's Broux said the rate differential between UK gilts and euro zone government bonds had also contributed to recent sterling strength, and that an easing of yields could hurt the pound versus the euro going forward.

"If U.S. bond yields grind lower ... that’s good for euro-dollar. And if that’s good for euro-dollar, that means that euro-sterling can go up," he said.

In a busy week for UK economic data, January unemployment figures are due on Tuesday, February CPI data and March PMIs are due on Wednesday, and February retail sales data is due on Friday.

In Northern Ireland, there is deep anger among pro-British unionists about the so-called Northern Ireland protocol, which was designed to prevent a "hard" Irish border after Brexit.

"The evidence of the disruptions to UK trade with the EU in January are a timely reminder that while the Brexit process is over, the economic consequences will continue to flow," JP Morgan FX analysts wrote in a note.

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