Sterling slips versus euro as traders weigh EU restrictions impact

© Reuters. FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/Illustration

By Joice Alves

LONDON (Reuters) – Sterling slipped on Tuesday but was near the 21-month high touched against the euro in the previous session with traders weighing how a COVID-19 resurgence in the euro zone will impact Britain.

Fears of more restrictions in Germany, after Austria reimposed a full lockdown, sent the euro on Monday to its lowest level of 83.80 pence against the pound since February 2020.

At 0945 GMT, the pound edged 0.3% lower versus the single currency at 84.16 pence, as the euro strengthened after data showed the euro zone business growth unexpectedly accelerated this month.

Analysts said all things considered sterling is coping, for now, well with the rising restrictions in Europe.

“GBP is clearly looking less vulnerable than the EUR at this moment,” ING told clients. “The vicinity of the UK to the EU, where cases are rising dangerously and new restrictions are being discussed, may be keeping a floor on “.

Supporting sterling, British businesses reported the fastest growth in new orders since June this month alongside record cost pressures, according to a closely watched business survey that could pave the way for a Bank of England rate rise in December.

The BoE is expected to become the first major central bank to raise rates since the start of the pandemic as inflation hit a 10-year high.

Casting some doubts on those expectations, BoE Governor Andrew Bailey said on the weekend that his concern on the inflation outlook is that it could be “elevated for longer” but there is also a chance that inflation does not prove as persistent as feared.

Versus the dollar, the pound slipped 0.1% to $1.3384, as U.S. President Joe Biden nominated Federal Reserve Chair Jerome Powell for a second four-year term, reinforcing market expectations of rate rises next year. Sterling was not far from a 11-month low of $1.3354 touched earlier in November against the dollar.

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