LONDON, Dec 7 — Sterling was slightly higher today, while some in the market bet that the Bank of England will raise interest rates in February 2022 after keeping them unchanged this month.
In a research note late yesterday, JP Morgan said it reckoned the BoE would buy more time as “the emergence of the Omicron variant has introduced new uncertainty about the timing of the first tightening” and will “begin tightening next February”.
According to analysts, last week’s comments by BoE officials expressed more caution about when the process should begin.
BoE Deputy Governor Ben Broadbent reignited some hopes for an interest rate hike when he said on Monday that inflation in Britain might “comfortably exceed” 5 per cent in April next year and that the country’s tight labour market risked becoming a more constant source of inflation.
Sterling strengthened 0.1 per cent versus the dollar to US$1.327 (RM5.61) at 0848 GMT.
The dollar was supported, hanging on to gains made with US yields as investors hoped early signs the Omicron variant may be mild would be borne out.
ING analysts flagged a divergence on how the Fed and the BoE have addressed the Omicron risks.
“While the Federal Reserve sent some hawkish signals and still sounded quite focused on spiking inflation, the Bank of England saw even some of its more hawkish voices like Michael Saunders take a more cautious tone,” they said.
They expect this divergence to keep a lid on the pound upside “in the run-up to the BoE meeting despite the upbeat risk sentiment”.
Versus the euro, the pound was 0.1 per cent higher at 85.21 pence, after touching an almost one-week low at 85.1 pence.
Britain’s health minister said yesterday there was now community transmission of the Omicron variant of the coronavirus across regions of England, but it was too early to tell if this would “knock us off our road to recovery”. — Reuters
