© Reuters. FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna

By Elizabeth Howcroft

LONDON (Reuters) – The pound strengthened on Friday, even after European leaders stepped up warnings about limiting vaccine exports, with market participants generally upbeat about Britain’s vaccine rollout and economic outlook.

After a meeting of European leaders on Thursday, European Commission chief Ursula von der Leyen said that AstraZeneca (NASDAQ:) cannot export any more COVID-19 vaccines from Europe until it fulfils its contracts with the EU.[nE8N2GX00D]

Sterling’s gains versus the euro this year have been largely due to Britain’s faster vaccine rollout, relative to Europe, analysts say, meaning that the EU-UK vaccine row could affect euro-sterling.

But German Chancellor Angela Merkel said on Thursday that the EU aims to achieve a “win-win” situation with Britain over vaccine supplies, and a UK minister said on Friday that Britain had enough supplies to vaccinate all adults by the end of July.

Brussels and London sought to cool tension on Wednesday, declaring they were working “to create a win-win situation and expand vaccine supply for all our citizens”.

At 1249 GMT, sterling was up 0.1% against the euro, at 85.62 pence per euro. It was on track for a 0.3% gain against the euro for the week as a whole.

Versus the dollar, the pound was up around 0.2%, at $1.3765 – seeing slightly smaller gains than other risk currencies such as the Australian and New Zealand dollar.

Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, said that the UK-EU vaccine row was having limited impact on the pound because it had not escalated into a tit-for-tat trade spat, and sterling was being lifted by the “risk-on” sentiment in markets more broadly.

He said that the euro-sterling pair could head towards 84 pence per euro, as April is typically a strong month for the pound.

British retail sales partly recovered in February, in line with a Reuters poll of economists.

“The economic wheel of fortune seems to be turning back in the UK’s favour. A successful vaccine rollout, aggressive policy support and a solid global backdrop set the stage for at least two years of rapid economic rebound from the massive pandemic shock of 2020,” Kallum Pickering, senior economist at Berenberg, wrote in a note to clients.

“We expect a strong consumer-led recovery from spring onwards as savings normalise, face-to-face services re-open and manufacturers step up production to meet rising demand,” he added.

Bank of England policymaker Michael Saunders said on Friday there might be more spare capacity – potentially meaning less inflationary pressure – in Britain’s economy after its COVID crash than the central bank said last month.

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