The pound was little changed on Monday, slightly down against a stronger dollar, while analysts were bullish on its outlook and latest positioning data showed the overall speculative long position on the British currency had increased.
The pound has strengthened against both dollar and euro in February, boosted by heightened risk appetite in global markets, optimism surrounding the UK’s COVID-19 vaccine rollout and a lessening of negative rates expectations.
The Bank of England (BoE) reported the findings of its consultation with banks about the feasibility of implementing negative rates last week.
Banks told the BoE that they would need at least six months to work out how to respond to negative rates – prompting the pound to rise as investors scaled back any expectations of the policy being introduced.
Negative rates are “unlikely to happen over the next 6 months due to operational risks, while the need to go negative after the 6-month period will be rather low as we expect a strong 2Q economic recovery”, wrote ING FX strategists Francesco Pesole and Petr Krpata in a note to clients.
“Coupled with the fast vaccination, GBP is set to benefit and GBP/USD to grind slowly higher next week,” they said, adding that they expect cable to move towards $1.50 by the end of the year.
At 0845 GMT, the pound was down around 0.2% against a stronger dollar at $1.3716.
Versus the euro, it was little changed at 87.72 pence per euro.
Speculators’ net long position on the pound got bigger in the week to Feb. 2, according to weekly CFTC futures data. The market has been net bullish on the pound since early December 2020, with the UK’s relative success in vaccine rollouts helping to lift sentiment.
Britain has injected over 12 million first doses of COVID-19 vaccines and is on track to meet a target to vaccinate everyone in the most vulnerable groups by mid-February.
South Africa halted the rollout of AstraZeneca’s COVID-19 vaccinations after data showed it gave minimal protection against mild infection from one variant, but Britain said the shot still stopped death and serious illness.
U.S. employment growth rebounded less than expected in January and job losses in December were worse than initially thought, prompting the dollar to dip but strengthening the argument for additional government funding to aid the recovery from the COVID-19 pandemic.
Reporting by Elizabeth Howcroft, editing by Ed Osmond