The pound has reached its highest level against the dollar in almost three years, as the rollout of Covid-19 vaccines adds to the currency’s relief rally following the Brexit trade deal agreed at Christmas.
Sterling rose as much as 0.7 per cent against the dollar on Thursday, crossing $1.37 to reach its highest level since April 2018.
More than 4m people in the UK have received their first dose of a Covid-19 vaccine, putting it ahead of other large economies in the race to inoculate its population against the deadly virus.
The country’s economy is geared towards positive vaccine news, because of its bias towards the service sector, said Charlotte Harrington, multi-asset fund manager at Fidelity.
The UK is doing a pretty good job of getting the vaccine out, “so that in combination with the removal of Brexit uncertainty is what is supporting the currency,” said Ms Harrington.
Sterling’s rise was flattered by a fall in the dollar on Thursday. The greenback slipped 0.4 per cent against a basket of its peers as investors sought out riskier assets, sending global stock markets to record highs in recent days — and denting the haven currency.
The dollar index is now down around 0.7 per cent for the week, against a 1 per cent rise for sterling and a 0.7 per cent gain for the euro.
Inflation figures for November, released on Wednesday, have also supported the pound, sending it to an eight-month high against the common currency. A faster pace of price rises reduced the pressure on the Bank of England to ease monetary policy further, a move that could have knocked the pound’s rally off course.
But Mimi Rushton, co-head of global FX sales at Barclays, said the inflation numbers were a “marginal factor”. Market participants remain focused on “forward-looking data, or forecasts pointing to the post-lockdown environment — or indeed, a signal as to when the current lockdown may end,” she said.
“The relative outperformance of the UK in rolling out the vaccination programme has definitely helped buoy expectations for an accelerated recovery,” Ms Rushton added.
A successful start to the vaccination programme, coupled with reduced expectations that the BoE will take its main policy rate below zero, were driving the pound’s gains, said Paul Robson, head of G10 FX Strategy at NatWest.
“Further sterling gains appear likely if the rollout continues to plan,” he added. “Economies that have suffered more than most from the global pandemic arguably have the most to benefit from a successful vaccine rollout.”