LONDON: Sterling weakened on Friday as the potential for earlier Federal Reserve interest rate hikes strengthened the dollar, while there was still uncertainty about whether the Bank of England will lift rates this month.
BoE policymaker Michael Saunders, who voted for an interest rate hike in November, said on Friday he wanted more information about the impact of the new Omicron coronavirus variant before deciding how to vote this month.
The dollar rose on Friday after the US jobs report showed solid details that suggested the Fed’s plan to accelerate tapering of its asset purchases and to hike rates next year remained intact. Sterling fell 0.6% to $1.3218, close to its lowest level since December 2020 of $1.3194 hit on Tuesday.
Against the euro, the pound dropped 0.5% to 85.41 pence, hitting its lowest level since Nov. 12.
ING analysts said that the sterling index now “sits not far from (the) mid-range” traded since March.
They forecast that dollar strength would be the likely driver of sterling until the Bank of England’s rate decision on Dec. 16. BofA analysts argued that the reaction function of the BoE, which is supposed to show how they balance growth and inflation indicators in their decision about rates, has been changing over time, “becoming more unpredictable.”
A survey by the BoE showed British companies are struggling to find the staff they need and expect higher inflation in the year ahead.
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