© Reuters. FILE PHOTO: British Pound Sterling banknotes are seen in a box at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017.REUTERS/Leonhard Foeger/File photo

By Ritvik Carvalho

LONDON (Reuters) – Britain’s pound rose against the dollar for a second day on Thursday as recovering risk sentiment in global markets helped buoy currencies correlated with economic growth.

Investor nerves over whether vaccinations will successfully head off future lockdowns amid surging coronavirus cases led to a stock selloff earlier this week, whacking sterling as much as 1.3% lower to the dollar on the week.

A broad recovery in stock markets took hold on Wednesday, helping the pound recover.

Sterling continued to rise in morning deals in London on Thursday and was the best performing “G10” currency on the day, up 0.2% at $1.3733 by 0815 GMT.

Against the euro, it was 0.2% higher at 85.84 pence.

“The pound is often the first point of entry in currencies when stock markets push higher,” said Neil Jones, head of FX sales, financial institutions, at Mizuho Bank.

“My sense is the pound has an underlying bid tone. It does appear from recent headlines there is interest from overseas to acquire further pieces of UK plc. Perhaps the inbound FDI (foreign direct investment) theme is in play.”

Earlier this month, Morrisons, Britain’s fourth-largest supermarket chain agreed to a takeover led by SoftBank owned Fortress Investment Group for 6.3 billion pounds ($8.7 billion).

Elsewhere, investors kept an eye on talks between Britain and the European Union on Northern Ireland.

Britain demanded on Wednesday that the EU agree to rewrite the Northern Ireland protocol, which covers post-Brexit trade involving the province just a year after it was agreed.

The EU immediately rejected that call, saying Britain needed to respect its international obligations and pointed out it had been negotiated by Prime Minister Boris Johnson.

British Business Secretary Kwasi Kwarteng said on Thursday the EU had been inflexible over renegotiating the Northern Ireland part of the Brexit divorce accord and cautioned Brussels that it was not a deal that would last for ever.

“Overall, we do not expect the noise about the Northern Ireland protocol to trigger any major reaction in the pound although it could continue limiting short-term upside potential while global market sentiment and domestic macro figures will remain the key drivers in the very short term,” said Roberto Cobo Garcia, strategist at BBVA (MC:) in a note to clients.

Retail sales and PMIs for Britain are due on Friday.

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