Sterling holds firm as vaccine jitters ebb

By Ritvik Carvalho

LONDON, March 17 (Reuters) - Sterling held firm against both the euro and the dollar as Britain's dismissal of safety concerns over the AstraZeneca vaccine gave the currency some berth to recovery from the previous day's falls.

A number of European countries, including Germany, France and Italy, have suspended AstraZeneca shots following reports of blood coagulation disorders in some recipients. Their safety concerns prompted a selloff in the pound on Tuesday as Britain is continuing to administer the vaccine.

Sterling then recovered some of those losses on Tuesday after Europe's medical watchdog, echoing other health bodies, reiterated its view that there was no evidence that the vaccine was unsafe.

By 0900 GMT on Wednesday, sterling was flat against the dollar at $1.3898 GBP=D3 and 0.1% higher to the euro at 85.60 pence EURGBP=D3, not far off a year's high of 85.40 pence per euro.

"UK authorities have dismissed safety concerns on the AstraZeneca vaccine, which should leave the pound less vulnerable than other European currencies to the suspension story," said strategist at ING in a note to clients.

"A wait-and-see approach may prevail in GBP price action as we head to the Bank of England meeting tomorrow."

Hopes that Britain's rapid vaccine rollout will lead to a faster reopening of its economy and a rebound from its worst annual contraction in output in 300 years have benefited sterling this year, with the pound until recently the best performing G10 currency.

However, as a spike in U.S. bond yields lifted the dollar over the past few weeks, sterling has come well off the $1.4240 - its highest levels against the dollar in nearly 3 years which it hit on Feb. 24.

Besides optimism about a vaccine-enabled economic recovery, relief over a Brexit trade deal and the Bank of England's pushing out of expectations of negative interest rates have also helped sterling BOEWATCH. The BoE meets on Thursday.

Bank of England Governor Andrew Bailey said on Monday he was more optimistic about the economy, though "with a large dose of caution", and a recent rise in interest rates in financial markets was consistent with the prospects of recovery from the COVID slump. nL8N2LD1TW

Rabobank said in a research note that the pace of any gains for the pound "will be far slower than in the year to date."

"We retain our medium-term forecast of EUR/GBP 0.85 but see scope for pullbacks to the 0.86-0.87 area in Q2."

(Reporting by Ritvik Carvalho;
Editing by Gareth Jones)

((Ritvik.Carvalho@thomsonreuters.com; +44 2075429406; Reuters Messaging: ritvik.carvalho.thomsonreuters@reuters.net; Twitter @ritvikcarvalho))