LONDON (Reuters) - The pound started the week down against the dollar and euro on Monday but analysts remained upbeat about the British currency's prospects and futures data showed the biggest net long position since March 2020.
Global markets started the week "risk-off", as escalating COVID-19 infections took precedence over optimism about vaccinations. The pound was among the risk-sensitive currencies to fall, while the safe-haven dollar edged up slightly.
The pound has fallen overall against the dollar so far this year but, after a no-deal Brexit was avoided via a last-minute deal at the end of 2020, analysts generally expect the pound to strengthen against a weakening dollar throughout 2021.
Weekly CFTC futures data indicated that in the week to Jan. 12, the net speculative position on the pound versus the dollar rose to its most bullish in 10 months.
At 0850 GMT, the GBP/USD was at $1.3536, down 0.4% against the dollar since the previous session's New York close.
Versus the EUR/GBP, it was down around 0.3% at 89.21 pence per euro.
"The pound is a procyclical currency, and the UK usually profits from investment inflows whenever global growth is strong. After many years of Brexit stress and an undervalued pound this procyclicality might have an even bigger impact than normal," wrote UBS strategist Thomas Flury and economist Dean Turner in a note to clients.
But, they cautioned, "a successful rollout of vaccinations in the first half of 2021 and an easing of restrictions in the UK, the US, and the rest of the world is, however, a necessary condition for this to play out."
Britain's minister for vaccine deployment said the country's vaccine rollout is limited by "lumpy" manufacturing.
But he also said that the UK is vaccinating 140 people per minute against COVID-19 on average.
Data on Friday showed that Britain's economy shrank in November as it went into a new lockdown, but the decline was smaller than expected as businesses adjusted to social distancing and schools remained open, making a double-dip recession less likely.
"The pound and the UK economy has proven more resilient than we expected to ongoing COVID disruption in the UK," MUFG currency analyst Lee Hardman wrote in a note to clients.
"With the pound already trading towards the top of its recent trading range against the euro, market participants have already scaled back downside risks for the pound in the near-term," he added.
Graphic: CFTC: https://fingfx.thomsonreuters.com/gfx/mkt/oakpeyayxpr/CFTC.png