Sterling fell against a stronger dollar on Friday as Treasury yields climbed, but the pound was still on track for weekly gains amid hopes for an economic recovery following Britain’s speedy vaccination programme.
Sterling was down 0.5% against a stronger dollar at $1.3925 as U.S. Treasuries sold off during early London trading, pushing the yield on the benchmark note above 1.60%.
“The weaker pound is largely a function of higher yields pushing the U.S. dollar into positive territory,” said Neil Jones, head of FX sales at Mizuho Bank. “The market is looking to hedge inflation fears again by buying U.S. dollars.”
Sterling was still on track for weekly gains against the dollar, amid hopes that Britain’s relatively successful COVID-19 vaccine programme would support its economic recovery and bolster the pound.
Versus a weakening euro, sterling rose 0.1% at 85.63 pence.
Data showed on Friday that Britain’s economy shrank 2.9% in January from December, a less severe decline than expected, as the country went back into a coronavirus lockdown. It’s likely to shrink by 4% in the first quarter of 2021, official data showed.
The better-than-feared data proved “slightly GBP positive,” said ING analysts, adding they expected sterling to continue to trade around 85.50 pence versus the euro.
Sterling has gained more than 4% against the euro in 2021 and around 2% versus the dollar.
Editing by Larry King