Sterling set for best week vs euro since first UK lockdown

[MongiIG]

By Joice Alves, 19th November 2021. Investing.com

LONDON (Reuters) - Sterling edged up versus the euro on Friday and was set for its best week versus the single currency since Britain's first lockdown in March 2020, after retail sales data fuelled bets the Bank of England will raise interest rates in December.

Sterling rose 0.2% to 84.10 pence versus the euro at 0940 GMT after official data showed British retail sales rose by 0.8% last month, a bigger rise than expected.

Economic data this week, including UK inflation and job numbers, had already bolstered expectations the BoE is ready to raise interest rates, after Governor Andrew Bailey surprised the market by keeping them on hold at its November policy meeting.

The pound climbed versus the euro to pre-pandemic levels this week; versus the dollar, it touched an 11-month high. It edged 0.5% lower at $1.3436 as the greenback strengthened on Friday.

"October retail sales are the latest piece of evidence to support a BoE rate hike," ING told clients, adding that the focus now will be on the speech from BoE chief economist Huw Pill due later in the day.

"He was one of the first to support tightening discussions advanced by Governor Bailey and he'll have more ammunition now," ING said.

The BoE is expected to become the first major central bank to raise rates since the start of the pandemic to try to contain inflation that hit a 10-year high as household energy bills rocket.

Easing some of the BoE's concerns about the risks of tightening monetary policy, data showed Britain's job market withstood the end of the government's furlough scheme.

Capping sterling's rise, worries have mounted that disagreements between Britain and the European Union could trigger trade disruptions, hitting the British economy, which is already lagging other rich nations.

 

Britain left the EU last year but has put off implementing some of the border checks between its province of Northern Ireland and EU member Ireland that the bloc says are required under their divorce deal.

On Friday, the government's spending watchdog said Britain had been unprepared for a crisis like COVID-19 and was distracted by Brexit.