The British pound reached an eight-month high versus the euro, however, declined against the American currencies. The changes came as analysts warned the BoE could potentially leave the door open for negative rates.
The sterling has boosted amid hopes over U.K.’s lead in vaccinations against the coronavirus pandemic. Furthermore, analysts pinning their hopes on a faster economic recovery relative to other regions whose vaccine rollout is delaying, such as the rest of Europe.
Additionally, the British sterling has benefited from risk sentiment in markets as well as Bank of England’s pushing back market expectations of negative interest rates.
ING Bank announced that it was upgrading its end-2021 forecast for the sterling versus the greenback and the euro. According to them, the British pound is likely to touch 85 pence versus the euro and break $1.50 versus the American currency this year.
The sterling trades at a 7% discount to the euro
Moreover, if we believe to a strategist at the Dutch Bank, the sterling trades at a 7% discount to the euro, based on a medium-term behavioural equilibrium exchange rate model.
Bank also announced that the faster pace of Britain vaccination, the scope for the more robust second-quarter recovery and less dovish Bank of England (vs the European Central Bank) should all support sterling vs euro.
According to the head of G10 FX strategy at CIBC World Markets, Jeremy Stretch, in the short-term, Bank of England decision on Thursday will affect the pound.
He says that there is still a residual risk the Bank may leave open the door for negative rates. Stretch noted that he is cautious about sterling at current levels.
According to Tuesday’s data, the British pound was down 0.1% versus the U.S. and stood at $1.3645 while it was 0.1% highest against the euro and stood at 88.17 pence.
Furthermore, CFTC data showed that speculators shortened their net long positions on the sterling against the greenback in the week up to last Tuesday.