Sterling strengthens

LONDON: The pound rose on Monday and positioning data showed speculators were the most bullish on the currency in three years, as the UK’s relative success in COVID-19 vaccinations provided support. Although Britain has Europe’s biggest official coronavirus death toll, it has outperformed on the vaccination front, with more than 21 million people having received the first dose of a COVID-19 vaccine.

In the first step towards a return to normality, schools in England reopened on Monday as part of the UK’s lockdown-easing plan. At 1157 GMT, the pound was up around 0.1% against a stronger dollar, at $1.3841.

Versus the euro, it was up around 0.4%, at 85.77 pence per euro. The euro has lost around 4% against the pound so far in 2021. Speculators added to their net “long” position on the pound and are the most bullish in three years, according to CFTC futures data for the week to March 2.

“The perception is that the economy bouncing back with the vaccine (means) there’s less prospect of negative rates,” said Richard Perry, analyst at Perry Market Analysis, adding that sterling was also still underpinned by a Brexit trade deal that Britain clinched with the European Union at the end of 2020. Perry said market participants were focusing on the plans for reopening the UK economy.

Bank of England Governor Andrew Bailey urged “cautionary realism” about Britain’s economic prospects and said that the central bank’s task was to get inflation back up to its 2% target and hold it there. Chancellor Rishi Sunak laid out his budget plan last week, which included a further extension of pandemic stimulus packages and a corporate tax hike from 2023.

“Last week’s Budget supports our view that the UK economy is well-positioned for the coming recovery,” wrote Goldman Sachs analysts in a note to clients. JP Morgan analysts wrote in a note on Friday, however, that they had sold the pound because they perceived it as riskier than market expectations.

“We expect GBP to remain vulnerable to the ongoing re-pricing in US yields and less bullish risk backdrop,” they wrote. Since Britain left the EU last year, relations between the two have soured, with each side accusing the other of acting in bad faith in relation to part of their trade agreement that covers goods movements to Northern Ireland. The UK lost market share in its biggest export markets during the COVID-19 pandemic, due to global trade chaos, Brexit and poor productivity, research published on Monday showed.