By Stefano Rebaudo
-The British pound hit a fresh 11-month low against the dollar on Wednesday as expectations for a rate hike supported the greenback, while it was slightly higher against the euro.
Investors remained focused on whether or not the Bank of England will raise interest rates at its December meeting, and wondered about the impact of the new wave of COVID-19 cases across the continent.
At 0833 GMT, the pound fell 0.4% versus the dollar, after hitting its lowest level since Dec. 22, 2020, at $1.3324, as the renomination of Federal Reserve Chair Jerome Powell strengthened market expectations of U.S. rate rises next year.
According to ING analysts, the pound is looking less vulnerable than the euro to the pandemic, although markets might be reluctant to speculate that Britain will dodge another COVID-19 severe wave.
But, a decisive move below 84 pence against the euro “may signal investors are starting to price in diverging contagion/growth paths for the UK and the eurozone, something similar to what we saw at the beginning of the vaccination programme in 1Q21,” they said in a research note.
Sterling was up 0.1% at 83.97 pence versus the euro, after hitting its highest since February 2020 on Monday at 83.8 pence.
Although the pound picked up support earlier this month from rate hike talk, investors are increasingly wary of the outlook for UK yields.
Bank of England (BoE) Governor Andrew Bailey raised further uncertainty over the weekend on the possibility of a rate hike in December by saying the inflation debate in Britain is finely balanced, according to analysts.
Bank of England policymaker Silvana Tenreyro said on Wednesday she was thinking “more in the medium term” on the question of when the central bank should start to raise interest rates from their pandemic emergency low.
Analysts at Nomura expect the BoE to raise rates “modestly at its December meeting (15bp)” as they expect fewer pandemic restrictions than those imposed in some European countries and a brighter near-term outlook for activity.
British industrial orders surged this month with a growth measure hitting its highest since at least 1977, and price expectations among manufacturers also climbed to a 44-year high, according to a survey published on Wednesday.