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

13 Jan 2021 / 18:07 H.

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

    * Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

    By Joice Alves

    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 said there were "lots of issues" with cutting interest rates below zero.

    Governor Andrew Bailey said negative rates could hurt banks and potentially reduce their lending to companies, when the economy is already struggling with a third national lockdown.

    Sterling rose 0.4% to 88.97 pence on Wednesday, its highest level against the single currency since Nov. 25.

    Against the dollar, the pound rose 0.2% to $1.3697, touching a nine-day high.

    The jump in the pound "definitely looks like a spillover from yesterday's session with money markets continuing to pare back expectations of negative interest rates due to Governor Bailey's comments," said Simon Harvey, FX analyst at Monex Europe.

    Market pricing shows investors expect negative rates from Britain's central bank in June. Before Bailey's comments, those expectations were for May.

    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.

    Negative rates talks could make a come back later on in the year, analysts said.

    "Negative rates would almost be like a steroid injection for the UK economy after it has been vaccinated," Harvey added.

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

    With faster vaccination than in the European Union, ING expects sterling to grind lower than 88.00 pence per euro. Against the dollar, the bank expects a "more pronounced GBP upside" and forecast the pound to touched $1.48 by the end of the year, ING analysts wrote in a note to clients. (Editing by Barbara Lewis)

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