Despite UK economic slowdown, Sterling has raised against dollar

Sterling rose against the dollar and edged up on the euro. This is despite official data showing Britain’s economy grew more slowly than previously thought before the recent Omicron variant surge in COVID cases. Official data shows that the British gross domestic product grew by 1.1% in the third quarter between July and September. This is weaker than a preliminary estimate of growth of 1.3%.

The euro, Australian dollar and other currencies recovered against the U.S. dollar. This is as the traders turned more positive about the economic outlook. The pace was also off the British economy’s 5.4% bounce-back. Investors are braced for a further slowdown. That is because of the rise in corona cases. Prime Minister Boris Johnson’s government has said that it can’t rule out further restrictions after Christmas. Sterling was up 0.6% against the dollar at $1.3356. It jumped close to $1.34, after the Bank of England hiked interest rates. This makes Britain the first G7 country to raise rates since the start of the pandemic.

Currency analysts at MUFG said that they continue to believe that the UK rate market appears well priced at the current juncture for up to four BoE hikes next year. It provides a high hurdle for the pound to strengthen on the back of a hawkish repricing of BoE expectations in the near-term. This is especially because of the worst of the new Omicron COVID wave is yet to be seen. Currency markets overall were muted, as volatility subsided in thin trading ahead of the holidays. Against the euro, sterling was up 0.2% to 84.88 pence per euro.