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Sterling slips against euro, analysts see gains

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Ritvik Carvalho
·2 min read
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* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

By Ritvik Carvalho

LONDON, Jan 19 (Reuters) - Sterling slipped against a strengthening euro and gained against a weaker dollar on Tuesday ahead of U.S. Treasury Secretary nominee Janet Yellen's testimony before Congress.

Investors are preparing for Yellen, who served as head of the U.S. Federal Reserve from 2014-2018, to talk up the need for major fiscal stimulus and commit to a market-determined exchange rate when she testifies later in the day.

Analysts say greater fiscal stimulus and commitment to a market exchange rate would fit their views for further dollar weakness this year.

The dollar dropped, giving sterling a lift of 0.1% to $1.3601

Against the euro, which strengthened on the weakening dollar, sterling fell 0.1% to 89 pence.

Analysts are bullish on the pound's prospects against the euro, given Britain's lead in vaccinations versus Europe's relatively slower start.

"We continue to think more pound strength is in the cards this year with the UK vaccinating a lot faster than the EU," said Mikael Milhøj, senior analyst at Danske Bank.

Britain, which has the world's fifth worst official death toll from COVID-19, is racing to be among the first major countries to vaccinate its population - seen as the best way to exit the pandemic and get the economy going again.

The rollout is limited by a "lumpy" manufacturing process affecting supplies of both Pfizer and AstraZeneca shots, but is on track to hit its targets, Vaccine Deployment Minister Nadhim Zahawi said on Monday.

Sterling has also benefited lately from the Bank of England pushing out the horizon for a potential introduction of negative interest rates.

Later in the day, the central bank's chief economist Andy Haldane is due to give a speech.

"Bank of England Chief Economist Andy Haldane's speech today is unlikely to affect sterling much, as the market has already adjusted to the lower probability of negative rates following Governor Andrew Bailey's comments last week," ING strategists said in a note to clients.

(Reporting by Ritvik Carvalho; Editing by Alex Richardson)