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UPDATE 2-Sterling strengthens vs euro; speculators' long position hits three-year high

Elizabeth Howcroft
·2-min read

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv (Updates prices, updates vaccine data, recasts lede)

By Elizabeth Howcroft

LONDON, March 8 (Reuters) - The pound slipped against a broadly stronger dollar but gained ground against the euro on Monday, supported by progress in the UK's COVID-19 vaccination programme, as positioning data showed speculators were the most bullish on sterling in three years.

Although Britain has Europe's biggest official coronavirus death toll, it has outperformed on the vaccination front, with more than 22 million people having received the first dose of a COVID-19 vaccine.

In the first step towards a return to normality, schools in England reopened on Monday as part of the UK's lockdown-easing plan.

At 1636 GMT, the pound was down around 0.1% against the dollar, at $1.3814.

Versus the euro, it was up around 0.3%, at 85.845 pence per euro. The euro has lost around 3.9% against the pound so far in 2021.

Speculators added to their net "long" position on the pound and are the most bullish in three years, according to CFTC futures data for the week to March 2.

"The perception is that the economy bouncing back with the vaccine (means) there's less prospect of negative rates," said Richard Perry, analyst at Perry Market Analysis. Sterling was also still underpinned by a Brexit trade deal that Britain clinched with the European Union at the end of 2020, he said.

Perry said market participants were focusing on the plans for reopening the UK economy.

'CAUTIONARY REALISM'

Bank of England Governor Andrew Bailey urged "cautionary realism" about Britain's economic prospects and said that the central bank's task was to get inflation back up to its 2% target and hold it there.

UK Chancellor Rishi Sunak laid out his budget plan last week, which included a further extension of pandemic stimulus packages and a corporate tax hike from 2023.

"Last week’s Budget supports our view that the UK economy is well-positioned for the coming recovery," wrote Goldman Sachs analysts in a note to clients.

JP Morgan analysts said in a note on Friday, however, that they had sold the pound because they perceived it as riskier than market expectations.

"We expect GBP to remain vulnerable to the ongoing re-pricing in US yields and less bullish risk backdrop," they wrote.

Since Britain left the EU last year, relations between the two have soured, with each side accusing the other of acting in bad faith in relation to part of their trade agreement that covers goods movements to Northern Ireland.

The UK lost market share in its biggest export markets during the COVID-19 pandemic, due to global trade chaos, Brexit and poor productivity, research published on Monday showed.

(Reporting by Elizabeth Howcroft, editing by Ed Osmond, Gareth Jones and Susan Fenton)