Sterling continues its ascent against dollar and gains on euro as Covid-19 vaccine rolls out

Sterling surged through $1.40 for the first time in nearly three years as investors bet the UK’s rapid vaccine rollout will help pave the way for a reopening of the economy this year.

Sterling is headed for a sixth week of gains after the UK hit its target of immunizing its top four priority groups, including the over-70s, by February 15. 

That progress could enable the country to ease its coronavirus measures, which sparked the worst recession for decades. 

Bullish case for the pound

“The bullish case for the pound versus both the euro and dollar remains intact,” said Petr Krpata, a strategist at ING, which expects it to finish the year above $1.50. 

“Against the euro, the pound should benefit from the faster vaccination process and a stronger second-quarter economic rebound,” the strategist said. It was at 86.71 pence against the euro. 

The rally follows a reduction in the Brexit uncertainty that has been hanging over the UK economy in recent years.

Pound is top-earning currency

The currency is also benefiting from weakness in the dollar and has become the top-performing major currency this year.

The confidence in a quicker economic recovery has led investors to pare back expectations for the Bank of England to cut interest rates below 0%. That has pushed up gilt yields rapidly, with the rate on 10-year debt up around 30 basis points so far this month to 0.63%, the highest level since March.

“The progress being made in the UK with Covid vaccinations is raising expectations of lockdown measures being lifter sooner rather than later, while the threat of negative interest rates has been taken off the agenda for now by the BOE,” said Stuart Cole, chief macro strategist at Equiti Capital. 

“If things continue to pan out as they have done so far this year, we see cable potentially moving back close to its pre-EU referendum high by end-year.” 

• With assistance from Todd Gillespie.