British vaccines push pound to highest since May against euro

By Elizabeth Howcroft

LONDON (Reuters) - The pound rose on Monday to its highest level against the euro since May 2020, boosted by optimism over Britain's COVID-19 vaccine rollout, although it fell against a stronger dollar.

After a row with Britain over vaccine supplies, European Union officials said on Saturday that it had been a mistake to invoke Northern Ireland Brexit emergency powers.

Britain, where some 9 million people have been given their first dose of a vaccine, said it expected its supply of COVID-19 shots would not be interrupted.

"The economy that does the best will be the one that’s able to get its population vaccinated earliest, and at the moment that looks like the UK," Michael Hewson, chief market analyst at CMC Markets UK, said.

With the impact of Brexit priced in, Hewson thinks the pound, if it goes through $1.3760, is likely to reach $1.40 in the first half of 2021, maybe by the end of March.

After the pound rose to $1.3758, just shy of the three-year high of $1.3759 it hit last week, it weakened as the dollar strengthened and was down 0.2% at $1.3669 at 1613 GMT.

Versus the euro the pound was up about 0.2% at 88.40 pence, having touched 88.05 pence earlier in the session, its strongest since May 2020.

Market players are focused on the Bank of England's meeting on Thursday, at which it is set to publish findings of a consultation on what negative rates would mean for banks' operations.

Lee Hardman, currency analyst at MUFG, said in a note to clients that the argument in favour of another imminent easing of monetary policy has been dampened by the last-minute Brexit trade deal, the resilience of Britain's economy at the end of last year and its relatively fast rollout of vaccines.

"However, the tougher third lockdown is expected to deliver a larger negative hit to growth at the start of this year," he added.

Most economists polled by Reuters think the Bank of England is unlikely to cut rates below zero this year.

Weekly CFTC futures data showed that the net long position on the pound shrank in the week to Jan 26, though speculators were still bullish on the currency overall.

Graphic: CFTC, https://fingfx.thomsonreuters.com/gfx/mkt/qmypmyrjdpr/CFTC.png

(Reporting by Elizabeth Howcroft; Editing by Jan Harvey, David Goodman and Alexander Smith)