UPDATE 2-Pound erases loss as Europe medicine watchdog says AstraZeneca vaccine safe

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Updates rates, news, adds quote)

LONDON, March 16 (Reuters) – Sterling edged higher against the euro on Tuesday and erased its earlier losses against the dollar after Europe’s medicines watchdog said AstraZeneca’s COVID-19 vaccine was safe.

Sterling had earlier fallen 0.65% versus the dollar to a one-week low of $1.3809 but by 1430 GMT it was flat at $1.3892

Against the euro, it rose 0.13% to 85.73 pence, having earlier hit its lowest level of 86.40 pence since March 5.

Analysts attributed the morning fall to news that Germany, Italy and France suspended AstraZeneca’s COVID-19 shots amid safety fears, dampening euphoria in Britain over its swift vaccination push.

The European Medicines Agency (EMA) said there was no indication that the blood clot incidents had been caused by the vaccine, but experts were assessing that possibility.

The World Health Organization also said there was no proven link and people should not panic. Shares in AstraZeneca, Britain’s second biggest listed company, were up 3.8%.

“The EMA briefing in addition to the reassurances from the WHO should limit the fallout on the pound from the news regarding the suspension of the AstraZeneca vaccine,” said Jane Foley, head of FX Strategy at Rabobank.

Britain said it had no concerns, but analysts have been cautious saying that if the safety fears surrounding AstraZeneca vaccine were confirmed, it could compromise Britain’s speedy inoculation programme.

Sterling has been under pressure too from the European Union’s move on Monday to legal action against unilateral British changes to Northern Irish trading arrangements.

However, the setback comes after sterling gained more than 5% against the dollar in the first seven weeks of the year amid Britain’s speedy vaccination programme and declining numbers of COVID-19 cases.

Dwindling expectations that the BoE will push interest rates below zero, and the Brexit trade deal with the EU agreed in December, have also supported the pound, which rose above $1.42 on February 24.

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