* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Updates prices, quotes)
By Maiya Keidan
LONDON, July 21 (Reuters) – The pound rallied for the third straight session on Tuesday, touching a six-week high above $1.27 as market optimism over a potential coronavirus vaccine and an EU agreement on a recovery fund outweighed concerns about the UK economy.
The currency had enjoyed its best day in three weeks on Monday despite poor UK economic data and a lack of concrete progress on Brexit trade talks.
That rally continued as, aside from the EU recovery fund agreement, early data from trials of three potential COVID-19 vaccines showed promise.
“Generally, it’s more about improvement in general risk sentiment. When you have risk-on in equities, the pound generally benefits,” MUFG strategist Lee Hardman said.
A relatively bullish assessment of the British economy by Bank of England chief economist Andy Haldane could also be supporting the pound, Hardman added.
The currency rose as high as $1.2753, the highest since June 11, and by 1550 GMT it was trading at $1.2740, up 0.6% on the day. Sterling has gained 1.3% already this week.
Versus the euro, it firmed 0.3% at 90.24 pence, having earlier reached a one-week high.
British shares, the blue chip FTSE100 as well as the mid-cap FTSE 250, rose in line with world stocks .
Meanwhile data showed British government borrowing a record 127.9 billion pounds ($162 billion) in the first three months of the 2020/21 financial year – more than double the total for the whole year before.
June borrowing alone, excluding state-owned banks, was 35.5 billion pounds, five times higher than a year earlier.
Britain’s debt to GDP ratio will likely exceed 100% soon, the UK Office for Budget Responsibility said.
A sale of 30-year government bonds also drew the lowest demand since March, continuing a recent pattern whereby investors accept record low yields for short-dated UK debt but are less keen on longer maturities.
Commerzbank analysts said the economy and Brexit risks meant the pound would “have to fight against strong headwinds”.
The pessimism is reflected in speculative positioning on sterling; short positions are around the levels of December 2019, when investors were hedging against the prospect of a hung parliament in a general election.
Reporting by Maiya Keidan
Editing by Mark Heinrich