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Pound Climbs to Three-Year High as Vaccines Spur Growth...

Business Maverick

Business Maverick

Pound Climbs to Three-Year High as Vaccines Spur Growth Optimism

British twenty pound notes sit in this arranged photograph in Danbury on Monday, 23 March 2020. (Photo: Chris Ratcliffe/Bloomberg)
By Bloomberg
01 Jun 2021 0

The pound advanced to the strongest level in three years as traders bet the U.K.’s economic recovery will gain traction with the rollout of coronavirus vaccines.

Sterling climbed above a previous high set in February, extending its gains this year to 4.2%. Three quarters of the U.K. population will be covered with a two-dose vaccine within a month based on the current pace of inoculations, according to data collected by Bloomberg and Johns Hopkins University.

“The pound is favored because the progress of vaccination puts the U.K. closer to economic normalization than other countries,” said Toshiya Yamauchi, chief manager for foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo. “Sterling could climb toward $1.45.”

Pound rallies along with accelerating vaccine roll-out

The pound rose 0.2% to $1.4240 after reaching $1.4248, the highest level since April 2018. The currency rallied 2.8% in May, a second straight monthly gain.

Sterling’s ascent reflects the U.K.’s relative success in containing the pandemic, with the authorities planning to fully reopen the economy on June 21. While the discovery of a highly transmissible variant of the virus originating from India poses a risk, Prime Minister Boris Johnson has said there is no conclusive reason to delay the easing of the lockdown.

Read more: U.K. Economic Optimism Hits Highest Since 2016 as Lockdown Eases

The improving outlook for growth is also fueling speculation the Bank of England will join its peers in Canada and New Zealand by signaling it may start to raise interest rates next year. Overnight-indexed swaps signal a 46% probability the central bank will raise its benchmark rate by August 2022, according to data compiled by Bloomberg.

“The U.K.’s economic recovery and associated growing expectations about the Bank of England ending asset purchases and hiking eventually are driving bullish pound bets,” said Alvin T. Tan, a strategist at RBC Capital Markets in Hong Kong.

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