Sterling eases off recent highs as vaccine optimism fades

LONDON: The British pound retreated on Thursday from the previous session's multi-month highs, as investors tempered some of their optimism about the UK vaccine rollout, with the lockdown in England set to last until at least March.

Sterling surged to its highest since May 2018 against the dollar in early London trading on Wednesday and later reached an eight-month high against the euro - a move analysts attributed to the UK rolling out vaccines faster than continental Europe.

But concern about vaccine rollouts globally, and the impact of mutations of the virus, created a cautious tone in markets, and a stronger dollar, which meant that the British currency eased off these highs on Thursday.

"In this environment, everything is pointing towards refuge in the dollar, even if the moves are marginal in today's trading session," said Simon Harvey, an FX strategist at Monex Europe.

"The pound is not sheltered from this strong USD environment, despite the UK's aggressive rate of vaccine distribution, although it remains relatively robust against other G10 peers," he said.

Britain said on Thursday it must get all the COVID-19 vaccines it had ordered and paid for, after some European Union politicians asked drugmaker AstraZeneca to divert doses from the UK to make up for a shortfall in supplies.

At 1156 GMT, the pound was down 0.2% against a stronger dollar, at $1.3661, compared with its Wednesday high of $1.3759 . Versus the euro, it was down around 0.2% at 88.59 pence per euro, after peaking at 88.135 in the previous session .

"We consider sterling optimism to be excessive and we see the risk of disappointed expectations. We therefore urge caution about betting on further sterling gains," wrote Commerzbank FX strategist You-Na Park-Heger in a note to clients.

"The markets are clearly ignoring that the current infection situation in the UK is still very tense," she said. "There is a high degree of uncertainty as it is difficult to say how the pandemic is going to develop short-term and when and how quickly the restrictions can be eased."

Britain has the world's fifth highest death toll from COVID-19, and Prime Minister Boris Johnson has indicated that the strict COVID-19 lockdown in England will last until March 8.

British households have cut debit and credit card spending sharply and the proportion of workers on furlough has risen to its highest since July after new coronavirus lockdown restrictions came into force earlier this month.