By Joice Alves

LONDON (Reuters) – Sterling edged higher against both the euro and the dollar on Monday as a swift coronavirus vaccine roll-out supported the pound and fuelled hopes of economic recovery.

After retreating from a three-year high on Friday to fall below $1.39 amid a rout in global bond markets and concerns of inflation risks, sterling rose as traders expect Britain’s speedy inoculation programme to help the economy rebound from its biggest contraction in 300 years.

Britain reported on Sunday that more than 20 million people have received a first dose of a COVID-19 vaccine, while cases last week were down 21.2% compared with the previous seven-day period, and deaths were down 33.5%.

British finance minister Rishi Sunak is set to announce an extra 1.65 billion pounds to fund the country’s vaccination roll-out as part of his annual budget statement on Wednesday.

“Developments have yet again looked positive for sterling, with 20 million of the UK population having now received their first vaccine at a minimum and reports that fiscal stimulus will remain supportive in Wednesday’s budget,” said Simon Harvey, senior FX Market Analyst at Monex Europe.

Sunak will also announce 5 billion pounds of additional grants to help businesses hit hard by pandemic lockdowns such as shops, bars, clubs, hotels, restaurants, gyms and hair salons, the government said on Saturday.

Versus the dollar, sterling rose 0.1% to $1.3937 by 1602 GMT. It was 0.2% higher against a weakening euro, to 86.50 pence, after falling to 87.30 on Friday.

Speculators added to their net long position for the fourth week running in the week to Feb. 23, CFTC positioning data showed. The market is at its most bullish in one year.

ING strategists said sterling positioning has moved in line with the pound’s “very strong performance” in the spot market.

“The build-up of GBP longs may have further to run in our view,” they added.

Shaun Osborne, Chief FX Strategist at Scotiabank said in a note to client that he expects cable to climb back above $1.40 this week.

(Editing by Ed Osmond and Gareth Jones)