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Sterling steadies as virus curbs dampen UK rate hike prospects

By Reuters

LONDON – The pound edged up against the euro and held flat against the dollar on Thursday, just above its 2021 low against the greenback hit the day before, when Britain announced tougher restrictions against COVID-19 as the Omicron variant spreads.

Prime Minister Boris Johnson on Wednesday evening instructed people to work from home where possible, wear masks in public places and use vaccine passes.

The spread of the new variant and subsequent imposition of those restrictions lowered expectations that the Bank of England will raise interest rates soon, which had bolstered the pound against the dollar in recent months.

Prior to Wednesday’s announcement of the new curbs, market watchers had seen the central bank lifting rates as soon as next week.

By 1550GMT, the pound was at $1.3197 against the dollar, flat on the day and just above the 2021 low of $1.3162 briefly touched on Wednesday.

Sterling rose 0.59% against the euro after a Reuters report that the European Central Bank will debate policy tweaks at a meeting next week.

The ECB could temporarily hike asset purchases while continuing to defer rate hikes, sources told Reuters, expectations of which have been a recent source of support for the euro.