The pound was little changed against the dollar as currency markets calmed on Wednesday but it continued to climb versus the euro, boosted by Britain’s relative success in COVID-19 vaccination.
The dollar edged up in early London trading, recovering some of the losses it suffered in the previous session when US treasury yields slipped and currency markets turned “risk on”.
At 0837 GMT, sterling was up less than 0.1 percent against the dollar, at $1.3899, having dropped in recent weeks from the three-year high of $1.424 it reached on Feb. 24.
Versus the euro, the pound was up around 0.2 percent at 85.53 pence per euro. Sterling has gained around 4.3 percent against the euro in 2021.
ING analysts wrote in a note to clients that euro-sterling was approaching “stretched short term undervaluation levels”.
“While the pace of the GBP appreciation may now slow, we argue that compared to prior years (defined by Brexit risk premium), we should get used to periods of frequent overshoots into overvalued GBP territory, given the vaccination dividend sterling is benefiting from,” they wrote.
Britain has Europe’s highest COVID-19 death toll and has seen its biggest economic shock in 300 years, but the pound has strengthened against both the dollar and the euro in recent months.
Analysts have attributed the currency gains to the UK’s vaccine rollout, which is one of the fastest in the world and has seen more than 40 percent of adults receive their first shot.
The government has set out plans to reopen the economy after England’s third national lockdown and market participants have reduced their expectations that the Bank of England could introduce negative interest rates.
The pound’s strengthening has also been attributed to the fact that a last-minute Brexit deal was reached at the end of 2020, although tensions between London and Brussels remain.
European Council President Charles Michel said on Tuesday that Britain had an outright ban on exporting COVID-19 shots. A UK government spokesperson said that this was not true.
On Wednesday, the EU responded to a summons from Britain, saying it would send charge d’affaires Nicole Mannion, effectively the EU deputy ambassador to Britain, to a morning
meeting with British foreign office permanent under-secretary Philip Barton.