Sterling holds above $1.39

LONDON: Sterling held above $1.39 on Monday after falling more than 1 cent versus the dollar on Friday as hopes for an economic recovery in Britain outweighed the impact of higher US Treasury yields.

The pound was down 0.3% at $1.3925 at 1038 GMT, after falling 1% during Friday’s session to $1.3865.

A sell-off in Treasuries, which has pushed the yield on the benchmark note above 1.60% and strengthened the dollar, has added pressure on risk currencies like the pound.

But amid hopes for a relatively fast economic recovery following a speedy coronavirus vaccination programme and declining numbers of cases in Britain, the outlook for sterling remained positive, analysts said.

Bank of England Governor Andrew Bailey said on Monday he was now more positive about the British economy as the novel coronavirus was in retreat, though he cautioned that the COVID-19 effect was huge.

“Sterling’s price action this morning is predominantly a retracement of Friday’s losses,” said Simon Harvey, Senior FX Market Analyst at Monex Europe.

“The pound is unlikely to widely disconnect from the 1.40- handle without a major shift from the BoE or a hiccup occurring with the government’s plans to reopen.”

Britain has suffered Europe’s highest COVID-19 death toll, but is rolling out vaccines faster than other European countries and the government hopes to fully lift social-distancing restrictions by late June.

Versus the euro, sterling rose 0.2% to 85.64 pence, after falling to 85.98 pence on Friday for the first time since March 8.

Sterling has gained more than 5% against the euro in the past three months and more than 3% versus the dollar as about 24 million people have received at least one vaccine dose in Britain.

Also buoying the pound this year are dwindling expectations that the BoE will push interest rates below zero, and a Brexit trade deal signed in December with the European Union.

An Accenture survey showed on Monday that British businesses are more likely to expect a rebound in activity this year than their counterparts abroad, and expectations of a pick-up in growth are stronger than at any point since 2015.