Make Kitco Your Homepage

Sterling hits 7-week high vs euro after BoE dismisses negative rates

Kitco News

* Graphic: World FX rates in 2020

* Graphic: Trade-weighted sterling since Brexit vote (Updates rates and news, adds charts)

LONDON, Jan 13 (Reuters) - Sterling hit a seven-week high against the euro on Wednesday, building on gains during the previous session when the Bank of England’s governor dismissed negative rates, while optimism over the pace of Britain’s vaccination rollout also offered support.

With the economy facing a third national lockdown, Governor Andrew Bailey said there were “lots of issues” with cutting interest rates below zero, which could hurt banks and potentially reduce their lending to companies.

Sterling was up 0.1% against euro at 89.20 pence by 1605 GMT, after earlier trading at 88.84 pence, its strongest level against the single currency since Nov. 24.

“Markets adjusting to Bailey rolling back views on monetary policy is a driver. Secondly, the UK is pulling ahead on vaccinations so this has shifted the UK economic underperformance narrative a bit,” said Geoffrey Yu, senior EMEA market strategist at BNY Mellon.

As the dollar gained ground, the pound edged 0.3% lower at $1.3629, after briefly touching a nine-day high of $1.37.

Following the completion of a Brexit trade deal in December, investors have turned their attention to Britain’s economy and its COVID-19 vaccination campaign.

Prime Minister Boris Johnson has said Britain is in a race against time to roll out the inoculation programme, while tougher restrictions have started to have some effect on the spread of COVID.

Deliveries of COVID-19 vaccines to Britain are on track and sufficient to meet the government’s vaccination targets, Health Secretary Matt Hancock said, referring to a government goal to offer a vaccine to all over 70s, extremely vulnerable people and health care workers by Feb. 15.

As coronavirus deaths hit record high in Britain, hospitals ran out of oxygen, and the country’s top medical adviser warned the pandemic’s worst weeks were near, negative rate talks could be pushed for later on in the year.

Market pricing shows investors expect negative rates in June. Before Bailey’s comments, those expectations were for May.

“Negative rates would almost be like a steroid injection for the UK economy after it has been vaccinated,” said Simon Harvey, FX analyst at Monex Europe.

Editing by Barbara Lewis, Kirsten Donovan, William Maclean

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.