LONDON: The pound had its second consecutive day of losses against a stronger dollar on Tuesday as a new spike in US Treasury yields saw the dollar hit a one-year high, while euro-sterling steadied, pausing its recent downward trajectory.
Accelerating US vaccinations and plans for a major stimulus package stoked inflation expectations and raised Treasury yields, with the safe-haven dollar also finding support as investors weighed up the fallout from the collapse of highly leveraged investment fund Archegos Capital.
At 1512 GMT, the pound was down 0.3% against the dollar at $1.372.
Euro-sterling fell to as low as 85.12 pence per euro, before the pound eased some gains. The pair changed hands at 85.485 at 1513 GMT.
Sterling has gained some 4.5% against the euro so far this year. Analysts say the move is largely due to the pace of the UK’s vaccine rollout, which is one of the fastest in the world and aims to offer shots to all adults by the end of July.
Some lockdown restrictions in England ended on Monday, in contrast to much of Europe, where France and Germany are among the countries contending with a third wave of COVID-19 infections and hospitalisations.
The UK’s 2-year gilt yield also rose in early trade on Tuesday, up as much as 3 basis points at the 8-day high of 0.112%.
“With diverging paths on the vaccination side in the UK and the EU, EUR/GBP may continue to drift lower towards the key 0.85000 support this week,” wrote ING strategists in a note.
Commerzbank strategist You-Na Park-Heger struck a more cautious note, writing to clients that “even if the UK emerges more quickly from the corona crisis than for example the EU a large share of the positive news is likely to be priced in already.”
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