Sterling reaches two-week high vs euro on BoE governor's cautious optimism

LONDON: Sterling touched a two-week high against the euro on Tuesday and gained versus the dollar, supported by progress in Britain's vaccination programme, with the Bank of England's governor cautiously optimistic about the recovery.

More than 22 million people have had the first dose of a COVID-19 vaccine in the UK. Traders expect the swift inoculation programme will help the economy rebound from its biggest contraction in 300 years.

In a speech to the Resolution Foundation, a think tank, BoE Governor Andrew Bailey painted a cautiously optimistic picture for Britain's economy after the COVID pandemic. He also said he did not expect a jump in inflation, which his chief economist and some investors consider a risk.

Bailey's comments are having an "extended impact on the pound", with investors "linking his tone with the relatively rapid vaccine roll-out in the UK which continues to support expectations for the recovery," said Jane Foley, head of FX strategy at Rabobank.

In early London trading, the pound rose to a two-week high against the euro at 85.57 pence. It was flat at 85.76 pence at 1227 GMT.

Versus a weakening dollar, sterling rose 0.4% to $1.3877.

After Britain suffered Europe's highest COVID death toll, schools in England reopened this week as part of the UK's lockdown-easing plan, in a first step back towards normality.

Foley added that the improvement in a British Retail Consortium survey was also marginally lifting the pound.

BRC's measure of spending at major retail chains rose by 1.0% in February compared with the same month last year, with sales of food rising over the three months to February.

Also supporting the pound was finance minister Rishi Sunak's decision last week to extend his jobs support programme until the end of September in a budget that strategists called "generous".

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.

Capping the optimism in England, Chief Medical Officer Chris Whitty said on Tuesday Britain will see a resurgence in coronavirus cases at some point and can't bring deaths from COVID-19 down to zero even with a successful vaccine rollout.