Sterling skidded to a six-week low against the dollar today as the EU considers banning Covid-19 vaccine exports to Britain, which relies heavily on imports for its vaccination drive.
After falling far behind post-Brexit Britain and the US in rolling out vaccines, European Union leaders are due to discuss a possible ban on exports to Britain on Thursday.
Britain demanded that the EU allow the delivery of Covid-19 vaccines it has ordered as tensions mounted and Brussels pointed an accusing finger at AstraZeneca.
Sterling was down 0.7% against the dollar at $1.3768 today after earlier hitting $1.3752, its lowest since February 9.
Against the euro, the pound traded 0.3% lower at 86.31 pence.
A month ago, bets that Britain's rapid vaccination drive would lead to a faster reopening of an economy that suffered its worst annual contraction in 300 years propelled the pound as much as 4.2% higher against the dollar on the year.
However, those bets are starting to unwind, and the pound has fallen from its perch of being the best-performing G10 currency as the dollar has strengthened on rising bond yields.
"One of the reasons why sterling has strengthened this year is the successful vaccine rollout," said Lars Sparresø Merklin, senior analyst at Danske Bank.
"We do not think the EU will implement an export ban (because it may turn out to hit themselves as well) but it is a topic to watch," he added.
Meanwhile, the UK jobless rate unexpectedly fell to 5% in the three months to January, when the country entered a new Covid lockdown, official figures showed today, below forecasts of a rise to 5.2% in a Reuters poll.
Investors will watch the speeches of three Bank of England officials today - Governor Andrew Bailey, Deputy Governor Sir Jon Cunliffe and Chief Economist Andy Haldane.
Investors will also be watching a vote of no confidence in Scottish National Party (SNP) leader Nicola Sturgeon in the Scottish parliament today.
A Scottish parliamentary election will take place in May, and Sturgeon has vowed to press for a second referendum on independence from the United Kingdom if the SNP wins an absolute majority.
Scots voted 55% to 45% to stay in the UK in a 2014 referendum, but the SNP says Scotland should now hold another vote due to Brexit.
Britain voted in a 2016 referendum to leave the European Union, but a majority of Scots wanted to remain.
