Pound hits $1.40 for first time since 2018 as vaccine boosts UK outlook

Sterling climbed to $1.40 for the first time in almost three years as investors looked past gloomy data and instead focused on hopes the country’s rapid coronavirus vaccine rollout will boost economic prospects.

The currency has risen 2.4 per cent against the dollar since the end of 2020, and more than 3 per cent against the euro. It traded as high as $1.4008 and €1.156, respectively, on Friday.

A year ago, with coronavirus starting to bite into global markets, sterling was on the brink of a historic fall. It collapsed 14 per cent to a low just above $1.14 in March 2020 as the pandemic sent companies and investors rushing into dollars.

Since then, the pound has drawn support from the last-minute agreement of a post-Brexit trade deal with the EU, and more recently from receding expectations that the Bank of England will deploy negative interest rates. The quick rollout of the coronavirus vaccines has bolstered hopes of a swift economic rebound once lockdowns end.

“Sterling keeps roaring ahead,” said Gaétan Peroux, strategist at UBS Global Wealth Management.

The currency’s gains come despite gloomy economic data released on Friday showing a deeper than expected drop in retail sales in Great Britain in January, illustrating the deep scars left by the latest round of lockdowns.

Thomas Pugh, UK economist at Capital Economics, said weak consumption data suggests that the economy may have notched up a weaker performance than analysts expect in the first month of the year.

Traders have shrugged off the disappointing figures, focusing instead on expectations that chancellor Rishi Sunak will announce measures to prop up the economic recovery in his Budget on March 3.

“Currency markets are likely to largely dismiss the numbers and instead focus on what likely lies beyond January,” said Paul Robson, head of G10 currency strategy at NatWest Markets. “Positive news in coming days may see the currency move even higher, potentially as high as $1.45.”

Still, MUFG’s Lee Hardman cautioned that the currency has risen 10 per cent since its lows in September, raising the possibility of a pullback if the outlook sours.

“A lot of good news has now been priced into the pound which leaves it more sensitive to any disappointment,” Hardman said.