Sterling fell today, touching a two-month low against the dollar, and was set for its biggest weekly drop so far this year, hit by concerns about vaccinations and profit-taking after a strong first quarter. 

The pound had its best quarter against the euro since 2015 in the first three months of 2021.

It was boosted by the UK's vaccine rollout, which is one of the fastest in the world, as well as a fading of negative rates expectations for the country. 

But that trend reversed this week, with sterling falling against the euro on Tuesday, Wednesday and Thursday - a move which market participants said was amplified by a squeeze of euro-pound short positions. 

The pound was at 86.81 pence per euro today, down around 0.1%. It was down 2.1% on the week overall, putting the pound on track for its biggest weekly fall since September 2020.

Against the dollar, the pound was down 0.3% at $1.3697, set for its biggest weekly fall since December 2020. 

Britain has surged ahead of the rest of Europe in the race to vaccinate its population, with almost half of its citizens receiving a first dose. But supply issues from its main Oxford-AstraZeneca shot have slowed progress in recent days. 

"The selling of sterling may have been connected to buying of euros," Marshall Gittler, head of investment research at BDSwiss, wrote in a note to clients. 

"It looks like perhaps people are getting more optimistic about the rollout of a vaccine in the EU and less optimistic about the comparable move in the UK," he added. 

But other analysts remained upbeat about the pound's prospects over the next few months. 

"GBP may further weaken, given lingering concerns about vaccinations, but we still see the ongoing GBP-USD retreat to 1.37 as a buying-on-dips opportunity over the medium term," UniCredit strategists wrote in a note to clients.

Similarly, ING said that the euro-sterling short squeeze "may have run its course ahead of 0.87" and that they still expect the pair to reach 0.85 later in this quarter.