LONDON: Sterling hit two-and-a-half-year highs against the dollar on Tuesday and set a nine-month high to the euro as investors stuck to bets that rapid COVID-19 vaccinations would set Britain up to recover from its biggest drop in output in 300 years.

The pound rose to $1.3955 against the dollar - its highest since April 2018 - in Asian trading, paring some of those gains to trade 0.1% lower on the day at $1.3891 by 1558 GMT.

Against the euro, it reached 87.06 pence, its highest since May 2020, last trading 0.2% higher at 87.06 pence per euro.

Speculators have increased their long positions on the pound - bets that the currency will appreciate against the dollar - for a second consecutive week in the week up to last Tuesday, CFTC data showed.

Britain’s coronavirus-ravaged economy suffered its biggest crash in output in more than 300 years in 2020 when it slumped by 9.9%, data showed last week.

Still, sterling is the best-performing G10 currency so far this year, up 2% against the dollar, and 2.5% against the euro.

The pound’s outperformance against the euro is attributed by analysts to a slower vaccine roll-out in other European countries.

“While the UK is currently in lockdown and growth this quarter will be negative, the full-year macro-economic backdrop remains strong and inflation contained,” said Caroline Simmons, UK Chief Investment Officer, UBS Global Wealth Management.—Reuters