By Joice Alves
LONDON -Sterling slipped on Tuesday to its lowest level versus the dollar this year as traders assessed the impact of new COVID restrictions across Europe, while expectations for a rate hike in the United States supported the dollar.
The pound slipped to $1.3344 versus the stronger dollar, touching its lowest level since Dec. 22, as U.S. President Joe Biden nominated Federal Reserve Chair Jerome Powell for a second four-year term, reinforcing market expectations of rate rises next year in the U.S.
At 1630 GMT, the pound was down 0.2% against the greenback at $1.3376.
Versus a recovering euro, boosted by better-than-expected business growth in the region, the pound fell 0.45% to 84.26 pence, not far from a 21-month high of 83.80 pence against the single currency hit in the previous session, when Austria’s new lockdown began and Germany said it was considering one.
Analysts said that all things considered, sterling was coping – for now – well with the rising restrictions in Europe.
“GBP is clearly looking less vulnerable than the EUR at this moment,” ING told clients. “The vicinity of the UK to the EU, where cases are rising dangerously and new restrictions are being discussed, may be keeping a floor on EUR/GBP“.
Supporting sterling, British businesses reported the fastest growth in new orders since June this month alongside record cost pressures, according to a closely watched business survey that could pave the way for a Bank of England rate rise in December.
The BoE is expected to become the first major central bank to raise rates since the start of the pandemic as inflation touched a 10-year high.
Casting some doubts on those expectations, BoE Governor Andrew Bailey said at the weekend his concern about the inflation outlook is that it could be “elevated for longer”. But he said there was also a chance that inflation did not prove as persistent as feared.