The British pound broke through the $1.40 barrier on Friday for the first time since April 2018 amid optimism over the country’s speedy vaccination programme.
Sterling was up 0.2 per cent against the dollar at $1.4005 in early morning trading as it headed for its sixth week of gains, after the UK hit its target of immunising 15 million people by last weekend. The pound later eased back to $1.3987 at 10.02am London time.
Fawad Razaqzada, market analyst at Think Markets, said the pound is likely to go even higher over time, "possibly towards the $1.50s in a few months’ time".
"This will depend to a great extent on how the UK economy will evolve and is subject to the virus situation. Things are looking up and there is finally light at the end of what has been a long tunnel," Mr Razaqzada told The National.
Britain's public sector borrowing hit £8.8 billion ($12.27bn) last month, the first January deficit for a decade and the highest figure for the month on record, according to data from the Office for National Statistics on Friday.
British retail sales plunged 8.2 per cent in January from December as non-essential shops went back into lockdown in England and were hit with tighter restrictions across the rest of the UK.
The government has invested £280bn in propping up jobs and businesses affected by the Covid-19 crisis so far, with public debt climbing to £270.6bn in the first 10 months of the fiscal year.
Despite coronavirus curbs, Britain's inflation rate rose to a three-month high of 0.7 per cent in January pushed up by higher food prices and fewer reductions by furniture retailers.
“This week’s stronger-than-expected inflation data also makes it less likely that the Bank of England will go down the route of negative interest rates, further boosting the pound,” Mr Razaqzada said.
“Let’s not forget that the UK also avoided a no-deal Brexit at the back end of last year, which is one of the key reasons the cable got to $1.40, a level where it was trading around before that 2016 [Brexit] referendum.”
Meanwhile, the pound dipped slightly against the euro in early trading, however Petr Krpata, a strategist at ING, said the bullish case for sterling against both the euro and dollar “remains intact”.
“Against the euro, the pound should benefit from the faster vaccination process and a stronger second-quarter economic rebound," Mr Krpata said.