UPDATE 1 sterling slips less than $ 1.38; UK vaccine rollout keeps outlook optimistic

* Chart: world exchange rates in 2020 tmsnrt.rs/2egbfVh

* Chart: Trade-weighted pound sterling since Brexit vote tmsnrt.rs/2hwV9Hv (update prices, add comment)

LONDON, Feb. 12 (Reuters) – The pound fell below $ 1.38 against the dollar, but remained stable against the euro on Friday, as currency traders focused on data showing that Britain’s economy grew in the last quarter of 2020, even though its annual collapse was the biggest in 300 years.

The UK economy shrank 9.9% in 2020, the biggest annual drop in production in over 300 years. But it avoided returning to a recession in the last quarter and is expected to recover in 2021.

The pound has been bolstered since the start of the year by the UK’s relative success in delivering COVID-19 vaccines, as well as relief that a last-minute Brexit deal was reached at the end of 2020.

It hit a three-year high of $ 1.3865 on Wednesday. On Friday, it softened those highs, down 0.2% against a stronger dollar at $ 1.3785 at 12:07 GMT. Against the euro, it was little changed at 87.82 pence to the euro.

“While the market is still hitting new highs, we expect retracements to be bought,” said Joe Tuckey, FX analyst at Argentex. “We saw a lot of tailwind for the pound sterling.”

Tuckey said he expected the cable to test the $ 1.40 level by the end of the first quarter, citing vaccination progress as a key factor that could speed up the UK’s exit from its current strict lockdown, which would boost the economy.

“We’re ahead, so I think that will really help – it will trickle down to the data if we’re ahead of the game, maybe in Q2,” he said.

Some 13.5 million people in the UK received their first dose of the vaccine on Wednesday, the government said. Prime Minister Boris Johnson has said he will announce details of the timetable to ease lockdown restrictions in the UK on February 22.

Elsewhere, Britain and the European Union on Thursday reiterated their commitment to resolving post-Brexit trade issues over the Northern Irish border.

Britain’s exit from the EU’s trade orbit in January resulted in a major disruption of trade between Northern Ireland and the rest of the UK, straining relations, London and Brussels are holding each other responsible for the problem.

“At present, the reaction of financial markets to the deterioration of relations has been limited, but there are clear risks that it could escalate and become a problem in financial markets – certainly one that could thwart recent momentum. on the rise of the pound, ”says MUFG research manager Derek Halpenny wrote in a note to clients.

“We maintain our positive view on the GBP for the time being, but we will be monitoring the progress of this consultation period closely over the next few days,” he said.