© Reuters

By Yasin Ebrahim

Invesitng.com – The pound surged to a 22-month high against the dollar on Tuesday, underpinned by surging U.K. bond yields on optimism over a strong reopening of the country following a speedy vaccine rollout.

rose 0.46% to $1.3802.

“Sterling has benefited from higher Gilt yields over recent sessions, following the BoE’s surprisingly upbeat growth forecasts last Thursday,” Daiwa Capital Markets said.

The Bank of England left its rates unchanged last week and said it projected GDP to recover rapidly toward pre-Covid levels over 2021.

For 2022, the central bank raised its growth forecast to 7.25% from a previous forecast of 6.25%.

While the U.K. rapid vaccine rollout has stoked investor hope of a rapid re-opening of the economy, officials in the U.K. have “already warned that virus mutations could derail the vaccination progress and in the short term travel restrictions will actually be tightened further,” Daiwa Capital Markets said.

The AstraZeneca (NASDAQ:) vaccine, which is the main vaccine distributed in the UK, offered as little as 10% protection against the Covid variant first seen in South Africa, according to a small study conducted by researchers from the University of Texas medical branch.

The Bank of England all but ended any hope of the cutting rates below zero last week, though kept the door ajar to negative rates in order to achieve “some of the benefits of lower rates without actually having to cross the Rubicon,” ING said.  

The fading prospect of negative rates and the speedy vaccine rollouts, however, are widely expected to keep the pound marching ahead.

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