Sterling rises on UK budget proposal to help economy recover

By Joice Alves

LONDON (Reuters) - Sterling rose against the dollar and euro on Thursday after the government rolled out an expansive annual budget designed to prop up the economy, while Prime Minister Boris Johnson said the latest problems with the European Union are solvable.

Sterling was up 0.2% against the dollar to $1.3984 at 1620 GMT. Versus the euro, it gained 0.4% to 86.13 pence, not far from the one-week high of 85.99 pence touched in earlier trading.

Prime Minister Boris Johnson said the latest problems surrounding Brexit and Northern Ireland could be solved with "common sense", after the EU promised legal action as Britain unilaterally extended a grace period for checks on food imports to Northern Ireland.

As locked-down Britain prepares to re-open, British finance minister Rishi Sunak delivered on Wednesday what he hopes will be a last big spending splurge to get the economy through the COVID-19 crisis.

The support, which included a five-month extension of Britain's jobs rescue plan, will enable the UK economy to return to its pre-pandemic size in mid-2022, six months earlier than previously forecast, Sunak said.

Sterling is the best-performing G10 currency this year, with investors expecting Britain's speedy vaccination programme will help the economy to recover from its worst annual contraction in 300 years.

Sterling is finding support from the budget and progress on vaccinations, said Neil Jones, head of FX sales at Mizuho Bank, which "add weight to the view the UK will stand at the forefront of the global COVID recovery".

"My sense is the budget measures bode well in the eyes of overseas investors".

The pound, which last week hit its highest versus the dollar since 2018, has gained more than 2% against the U.S. currency and more than 3% against the euro this year.

Relief over a Brexit trade deal signed in December with the European Union and a Bank of England pushing back market expectations of negative interest rates also supported the pound.

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(Reporting by Joice Alves; editing by John Stonestreet and Lisa Shumaker)