• December 9, 2021

Sterling Falls, Nearing 5-week Lows

On Tuesday, the pound saw itself fall against the euro as well as the dollar, which brought it not very far from the five-week low that it had reached in the previous week, as sentiment was weighed down because of fading expectations of a hike in interest rates. Sterling had experienced a sharp fall last week when the Bank of England in a surprise move had announced that they were going to leave the interest rates unchanged. The National Institute of Economic and Social Research (NIESR) has stated that there is a risk of stagnation where the British economy is concerned and there is likely to be sticky inflation in the next few years because of headwinds from Brexit as well as supply-chain bottlenecks. 

According to analysts’ expectations, trading will remain subdued as the UK 3Q GDP data is scheduled for release on Thursday. Still, it has been predicted that the Sterling will probably finish the year between the range of $1.34 and $1.38 and experts added that there wasn’t enough conviction that could drive the currency below the support levels it had seen in September. By 1500 GMT, the pound had declined against the euro by 0.2% to reach 85.59 pence. As far as the dollar is concerned, the pound had fallen by 0.1% to reach $1.355, after it had hit a five-week low of $1.3425 on Friday. 

As per analysts, the sterling will have to go beyond the value of 1.36 against the dollar, if it wants to convince the market to return long once more just ahead of the meeting of the Bank of England scheduled in December. A probability of 50% has been assigned by the markets to a hike in interest rates in December, whereas two rate hikes had been priced before the BoE meeting and the end of the year. It was noted by analysts that the dovish tone taken by the Bank of England is what took the entire market by surprise. 

Not only did the Bank of England did not increase the interest rates, but the problem was that they had also taken a very dovish tone when it came to the topic of future hikes in rates. The analysts have taken into account the proprietary mood indicator of the BoE, which is based on their language and minutes and they have given the same impression. They have gone down to least hawkish. The pound was also under pressure because of potential new spats with France and Ireland about the trade deal signed post-Brexit. 

On Tuesday, Clement Beaune, the French European Affairs Minister, and David Frost, the British Brexit minister also spoke about the issues, which include post-Brexit trade and fishing and they agreed to speak again later this week. On Sunday, Ireland said that the British government seems prepared to invoke emergency provisions that were made in the Brexit deal regarding the trading arrangements made with Northern Ireland. How this matter will fare remains to be seen, but is adding to the pressure on the British currency. 

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