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Sterling strengthens, helped by UK vaccine rollout and better retail sales

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, March 26 (Reuters) - The pound strengthened against both the dollar and euro on Friday, even after European leaders stepped up warnings about limiting vaccine exports, as market participants were generally upbeat about Britain’s vaccine rollout and economic outlook.

After a meeting of European leaders on Thursday, EU commission chief Ursula von der Leyen said that AstraZeneca cannot export any more COVID-19 vaccines from Europe until it fulfils its contracts with the EU.

Sterling’s gains versus the euro this year have been largely due to Britain’s faster vaccine rollout, relative to Europe, analysts say, meaning that the EU-UK vaccine row could impact euro-sterling.

But German Chancellor Angela Merkel said on Thursday that the EU aims to achieve a “win-win” situation with Britain over vaccine supplies, and a UK minister said on Friday that Britain had sufficient supplies to vaccinate all adults by the end of July.

Brussels and London sought to cool tension on Wednesday, declaring they were working “to create a win-win situation and expand vaccine supply for all our citizens”.

At 0848 GMT, sterling was up 0.2% against the euro, at 85.53 pence per euro. It was on track for a 0.4% gain against the euro for the week as a whole.

Versus the dollar, the pound was up around 0.3%, at $1.3777 - seeing slightly smaller gains than other risk currencies such as the Australian and New Zealand dollar .

British retail sales partly recovered in February, in line with a Reuters poll of economists.

“The economic wheel of fortune seems to be turning back in the UK’s favour. A successful vaccine rollout, aggressive policy support and a solid global backdrop set the stage for at least two years of rapid economic rebound from the massive pandemic shock of 2020,” Kallum Pickering, senior economist at Berenberg, wrote in a note to clients.

“We expect a strong consumer-led recovery from spring onwards as savings normalise, face-to-face services re-open and manufacturers step up production to meet rising demand,” he added.

The Bank of England says the degree to which households spend the savings they have accumulated while they have been stuck at home will determine the speed of Britain’s recovery from its worst economic shock in more than three centuries.

BoE policymaker Michael Saunders is due to give a speech later in the session, on the topic of supply and demand before and after the pandemic.

Reporting by Elizabeth Howcroft Editing by Robert Birsel

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