Market Overview

The Pound Is on a Winning Streak After the U.K. Ramps Up Covid Vaccinations

The pound is winning the hearts and minds of fund managers and forecasters as the U.K. steps up its coronavirus vaccinations to improve the chances of an economic rebound. Analysts now see the currency ending the year up 2% at $1.40, having lifted their predictions from $1.36 just a few weeks ago, according a Bloomberg survey. Jupiter Asset Management and Arbuthnot Latham are among the investors betting on further gains after sterling’s best monthly streak since 2012.

The confidence comes as the country’s vaccine rollout is outpacing the U.S. and Europe, with about nine million people inoculated so far. It’s led markets to push back bets for a Bank of England interest-rate cut to next year, even with policy makers set to publish the responses to a consultation on negative rates on Thursday.

Sterling is the only Group-of-10 currency to hold its own against the dollar this year. That’s a sharp turnaround from early in 2021 when the pound led declines among peers, amid concerns about the City of London after Brexit and the wider health of the economy.

The main risk factor is the BOE further cutting borrowing costs from 0.1%, after policy makers raised the possibility of sub-zero rates in recent months. Any signs in favor in Thursday’s policy statement could spook markets, though most analysts think the BOE will avoid taking this controversial step. Options traders are largely ruling out a surprise over the coming week, with the cost of hedging swings in the currency close to its lowest since mid-2020.

The Pound Is on a Winning Streak After the U.K. Ramps Up Covid Vaccinations, Bloomberg, Feb 2

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