Pound powers past $1.40 for first time in nearly 3 years

LONDON: The pound hit $1.40 against the dollar for the first time in nearly three years on Friday, as analysts bet a rapid pace of vaccinations and fading Brexit woes will lead to an economic rebound from Britain’s biggest economic contraction in 300 years.

At $1.40, sterling has overcome much of the Brexit hangover and is about 6% shy of $1.4860 - the level it held a day before the result of the 2016 Brexit referendum was announced.

Bets that Britain’s quicker pace of vaccinations will lead to a faster economic recovery coupled with relief over a post-Brexit trade deal signed with the European Union at the end of last year have helped make sterling the best-performing G10 currency in 2021.

The British currency is up 2.7% against the dollar year-to-date. The risk of a “no-deal” Brexit has weighed on Britain’s growth and investment prospects since June 2016, when the country voted to break off from its biggest financial services customer, which accounts for $1 trillion of bilateral commerce a year.

By 1335 GMT, the pound was up 0.4% on the day at $1.4024 against the dollar. It earlier hit $1.4036, its highest since April 20, 2018.

“My sense is the vaccine currency label attached to the pound is in part behind the move through $1.40,” said Neil Jones, head of FX sales, financial institutions at Mizuho Bank.

The pound has also gained more than 3% against the euro this year, with analysts attributing the single currency’s weakness to the pound as reflective of other European countries’ relatively slower vaccine rollout. On Friday it traded flat to the euro at 86.45 pence.

UK Prime Minister Boris Johnson is expected next week to announce the government’s next steps in fighting the coronavirus, which may include plans to take Britain out of its third national lockdown.

Speculators increased their long positions on sterling - bets the currency will increase in value against the dollar - to their highest levels since March 2020 in the week up to last Tuesday, CFTC data shows.