Sterling set for deep weekly losses as risk sentiment sours

  • 10/1/2021
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* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv LONDON, Oct 1 (Reuters) - Sterling was set on Friday for its third worst week in the past year as risk sentiment soured across global financial markets while a shortage of truck drivers and a surge in energy prices disrupt and blacken the prospects of Britain’s economy. While markets have brought forward their expectations for the Bank of England to raise interest rates, the likely incoming tightening of monetary policy has failed to prop up the currency. “It’s been another grim week for the pound, which remained highly sensitive to swings in sentiment and still struggled to cash in on the recent hawkish repricing of Bank of England rate expectations,” said Francesco Pesole, a strategist at ING. “Another risk-off day today could see EUR/GBP tick higher again,” Pesole added. At 0815 GMT, the pound was down 0.15% at 86.06 pence against the euro and losing 0.17% versus the dollar at $1.3450 . At this rate, sterling was on course for a weekly loss of over 1.5% against the dollar. The British pound was one of the strongest G10 currencies earlier this year as investors bet the British economy would re-emerge faster from the pandemic thanks to Britain’s speedy vaccination programme. But that narrative has crumbled since, with sterling erasing all of its strong 2021 gains and heading for a yearly loss. The strength of the greenback, which began the last quarter of 2021 near its highest levels of the year boosted by a hawkish-sounding Federal Reserve, also weighs on the pound. More than two thousand British gas stations were dry on Thursday due to a shortage of truck drivers which was starting to disrupt deliveries to pharmacies, while farmers warned a lack of butchers could lead to a massive cull of pigs. “The current petrol crisis is underlining the effects of Brexit, however much Prime Minister Johnson is trying to make it all sound positive,” argued Commerzbank analyst Antje Praefcke. “The sceptre of stagflation has not yet reared its ugly head but remains a possibility,” she added, also noting soured relations with France due to post-Brexit fishing rights issues. Data released by the Office for National Statistics showed that while the economy grew by more than previously thought in the April-June period, it was set to slow down as post-lockdown bottlenecks, including the shortage of truck drivers, undermine the recovery. (Reporting by Julien Ponthus Editing by Mark Heinrich) Our Standards: The Thomson Reuters Trust Principles.

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