Sterling hit its highest level against the euro since the end of February 2020 as easing concerns about the economic impact of the pandemic boosted risk-on currencies, while analysts expect more rate rises from the Bank of England in 2022.
Risk appetite was supported by signs that governments, despite coronavirus cases hitting record highs, are trying to limit the economic damage by relaxing rules on isolation rather than resorting to lockdowns.
“The sterling is a risk-on currency that will benefit from the huge financial and fiscal stimulus and a more benign pandemic outlook,” Enrique Diaz, chief risk officer at Ebury, said. His short-term target is at its pre-pandemic levels at 83 pence per euro.
“Even with the removal of monetary accommodation, central banks are going to leave significantly stimulative policies in place for the foreseeable future. This is positive for risk-on currencies and is positive for the sterling,” he added.
Sterling was up 0.2 per cent against the euro at 83.7 pence per euro , its highest level since February 26, 2020. It was edging up 0.1 per cent versus the dollar at $1.3516 , within striking distance of its highest since November 10.
Markets currently price in an about 95 per cent chance of a 100 basis points rate rise from BoE by the end of 2022.