Sterling slumps after weekend sell-off

The pound sterling faced a massive sell-off at the end of last week due to market concerns around Omicron and the potential delay in the BoE rate hike.

The GBP/USD exchange rate in the Asian session on Monday (6/December) was stuck near the closing price last week at around 1.3240s. Cable faced a massive sell-off at the end of last week due to market concerns about the COVID-19 variant of the Omicron and the potential delay in the BoE rate hike.

pound sterling, gbpusd, omicron, interest rates

Market participants now expect the UK central bank (BoE) to start raising rates again this December or February 2022. Money markets present a 33% chance for a December rate hike, as well as a nearly 90% chance for a February rate hike. But a BoE official's comments on Friday threatened to tear up that set of projections.

Michael Saunders -one of the most hawkish BoE MPC members - said that Omicron will be an important consideration at the central bank's policy meeting on December 16. He considered there were "a number of advantages" if the BoE waited for further information on Omicron to be collected before changing policy, although delaying a rate hike would also have different consequences.

Saunders opinion suddenly hit sterling against a variety of other currencies in the New York session, including the US dollar, Japanese yen and euro. The reason is that this opinion may mark a shift in the attitude of BoE officials who previously promoted a rate hike in line with positive UK economic data.

Sterling's position began to rise again in early European trading today, but speculation surrounding a delay in the BoE rate hike is still one of the main factors weighing on it.

“The health impact of Omicron is still unknown, but the market clearly doesn't like the uncertainty,” said Kjetil Martinsen, Swedbank Chief Economist, on Friday, “BoE Saunders earlier today also signaled their (BoE) concern about (Omicron) potential impact on the UK economy, eroding the market's view of a December rate hike."

“The GBP is among the currencies particularly sensitive to spikes in risk aversion,” said Valentin Marinov, Head of G10 FX Strategy at Credit Agricole, “Additionally, markets continue to dampen expectations of a BoE rate hike on the shadow of concerns about negative impact of the pandemic on growth, the energy crisis and Brexit." 

Post a Comment for "Sterling slumps after weekend sell-off "