By Ritvik Carvalho

LONDON (Reuters) – Sterling gained against both the dollar and the euro on Tuesday as analysts bet a faster pace of vaccinations in Britain and the scope for a faster economic recovery would boost the currency this year.

The pound has gained amid optimism over Britain’s lead in vaccinations against COVID-19, with analysts pinning their hopes on a faster economic recovery relative to other regions whose vaccine rollout is lagging, such as the rest of Europe.

Risk sentiment in markets has also benefited the pound, as has the Bank of England’s pushing back market expectations of negative interest rates.

ING Bank said it was upgrading its end-2021 forecast for the pound against both the dollar and the euro, expecting the pound to reach 85 pence against the euro and breaching $1.50 against the dollar this year.

Strategists at the Dutch bank said they estimate the pound trades at a 7% discount to the euro – undervalued – based on a medium-term behavioural equilibrium exchange rate (BEER) model.

“The faster pace of UK vaccination, the scope for a stronger 2Q21 recovery and less dovish Bank of England (vs the European Central Bank) should all benefit GBP vs EUR,” the bank said in a note.

“While risks remain in place (the negative headline news around the Scottish independence referendum; the ongoing risk of tariffs should UK government choose to deviate from EU labour laws), these should only slow, rather than reverse, sterling’s upside.”

By 0902 GMT, sterling was up 0.3% against the dollar at $1.3702 and 0.1% higher to the euro at 88.17 pence.

Speculators reduced their net long position on the pound against the dollar in the week up to last Tuesday, CFTC data showed on Friday. [CFTC/]

(Reporting by Ritvik Carvalho; editing by Larry King)